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Making Hay While the Sun Still Shines - Spending the Projected State Surplus

Making Hay While the Sun Still Shines - Spending the Projected State Surplus

Everyone who has followed my blogs know that I am an unabashed liberal. On the cusp of Governor Walker's State of the State Speech and an unprecedented billion dollar surplus for 2015, there isn't much doubt about the focus of his speech. He's already announced that he wants to do some selective spending and tax cutting; now the question is what and where.

From what I understand, most of the states in our fine union, are looking at surpluses after all the 'belt tightening' of the last 5 to 6 years. Therefore, Wisconsin isn't alone in deciding what to do with the 'windfall'. I listened to an economist on NPR and she outlined the approaches that some of what states are considering. Tax cuts rank high on the 'to do' list, especially in the 'Red State World'. But, that is not the only action being considered. Some of the states are looking to put money into programs that suffered during the 'Great Recession', including a number of 'Red States'. Governor Bobby Jindal of Louisiana is proposing to put more money into K12 education. Other targeted recipients of restored funding, include more money for healthcare, social services, etc. Many of the states are also looking to replenish their 'Rainy Day Funds' since they were seriously depleted during the 'Great Recession'. To decide what to do with the money, creates fertile ground for political maneuvering.

Since the information about Wisconsin's announcement of the surplus came out, I am sure that every special interest group and lobby began immediately salivating over the chance to get their hands on more of the public's money. It wouldn't surprise me if the phone lines to the governor's office along with the legislature, have been ringing off the hook. Of those calling, the special interests on the right probably have the biggest dollar signs in their eyes. Of course the liberal interests are going to make every appeal possible to get their pet programs refunded, but probably to no avail. If any special interests get a 'piece of the pie' it will undoubtedly be Walker's friends on the right who will receive the benefits. I shouldn't need to remind anyone, but this is an election year and campaign money is of a high priority. Just to be clear, if the Democrats and liberals were in power, it would be pretty much the same. It would be liberal special interests and lobbyists who would be fighting for their place at the feeding trough. However, that aside, how should this surplus be viewed?

I think there is only one way to view the surplus, it's a 'one of ' event. After this current huge surplus, I doubt that we'll ever see something of this size again. In a small way it's like winning the lottery and we don't expect to win a lottery every year and neither should the state. Keeping that in mind, then we need to plan fiscally as if it never occurred. To begin with, using the surplus as a justification for a major tax cut doesn't make fiscal sense. Using the surplus to fund the tax cut follows the same logic as taking the $810 million from the feds to build the High Speed Rail between Milwaukee and Madison. Sure we can build it, but the money to maintain after it's been built then becomes a continuous cash outlay each and every year, assuming that the train couldn't generate enough revenue to cover the maintenance. The surplus would either briefly fund new programs, but we still will need taxes to continue after the surplus runs out, unless we cut other programs to keep funding the new priorities. So what should we do with the surplus?

Setting aside my proclivity to spend money on social programs, I think it would be fiscally responsible to do two things; put money into the 'rainy day fund' and retire part of the state's structural debt.

If we've learned anything from the 'Great Recession', it is a given that we will face further recessions in the future. Recessions, just like the one we just experienced, puts a tremendous strain on state resources and services. So why not build up the 'rainy day fund' to help provide a cushion in the future and avoid the steep declines we experienced last time. Also, by reducing our structural debt, we will benefit from from strengthening our fiscal well being and be much more attractive in seeking further funding to finance high cost infrastructure projects. Just as we will experience future recessions, the cost of borrowing money in the future will not always be as cheap as it is now.

Now is the time to set politics aside and do what is fiscally rational. Let's avoid the temptation to spend the projected surplus and plan for the future.

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