■ Wisconsin economic summits Wisconsin Economic Summits ■ 08.26.2010 Wisconsin’s economy and the state of state finances Confronting reality

■ Wisconsin economic summits

Wisconsin Economic Summits ■ 08.26.2010

Wisconsin’s economy and the state of state finances

Confronting reality


■ WISTAX: teaching, informing . . . angering

■ State economy & competitive position

■ State finances: past, present, future

■ Elephants in the room: #1 and #2

Overview


The state of Wisconsin’s economy


Creating, losing jobs

US vs. WI nonfarm jobs (SA), Jan 00 = 100 (Mo’ly)

96.7

99.8

3.0

90

92

94

96

98

100

102

104

106

2000 2002 2004 2006 2008 2010

0.0

1.5

3.0

4.5

6.0

7.5

9.0

10.5

12.0

US - WI

US

WI


Avg. Earnings/Worker & GDP/Worker (WI % < > US)

Productivity & wages

-3.8%-6.2%

-12.9%

-10.9%

-13.2%

-12.7%

-14.8%

-5.0%

-20%

-15%

-10%

-5%

0%1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Productivity:GDP/Worker

Avg. Earnings/Job


Sector WI US WI USAll 9.1% 7.6% -3.0% 5.2%

Construction 6.6% 9.0% -14.8% -1.7%Manufact'g -2.4% -8.1% -5.4% -3.7%

All - Const'n 9.5% 7.4% -1.5% 6.0%All - Manuf'g 10.1% 8.4% -2.9% 5.6%

05-0901-05

Pct. Change in No’s of Private EstablishmentsThird Quarter of Ea. Yr. Shown (BLS)

Gaining, losing employers

> v


Big picture: “Product Wisconsin”

1.93%

1.90% 1.86%

1.77%

2.08%

1.77%

1.87%

1.70%

2.10%

1.50%

1.75%

2.00%

2.25%

1963 1971 1979 1987 1995 2003

MN

WI

Wis. % of US GDP


Strategic view: Wis. as ‘product’

-80

-40

0

40

80

-60 -40 -20 0 20 40 60

^ wyak

ny

vaca

de

tx

ma

IA

WI

MI

MN

ILms

scky

"Stars"

"Dogs"

ar|id

WI98

GDP % chg

GDP pc


Competitive position? Energy costs

$16.85$15.74

$16.73

$20.16$23.83

$26.49

$9.27$10.75 $11.76

$0

$7

$14

$21

$28

85 90 00 04 05 06 07 08

$/mill. BTUs, avg. comm/res/mfg.

Nat’l gas

Electricity

US avgs. = $28.75 e, $9.18 ngWI electric > IA, MN; ~IL, MI

US

US


Investments/workerWI $22.30

US 204

IL 75

IA 25

MI 62

MN 174

$0.57$3.47

$67.68

$20.33

$23.16

$24.53

$28.04

$22.30

$0

$25

$50

$75

90 95 00 04 05 06 07 08

. . . Entrepreneurial activity: VC/worker


. . . Entrepreneurial activity: patents

Per one million population

187

248

387358

317

386

344

341

100

200

300

400

85 90 00 04 05 06 07 08

WI 341

US 303

IL 278

IA 215

MI 358

MN 550


How Wisconsin Taxes Compare NationallyRevenues as Pct. of Pers’l Income; FY 08: US Census

Competitive position? Taxes

Revenue US

% Inc. % Inc. +/- US Rank Rk Chg. % Inc. Rank

Taxes 11.20 11.76 5.0% 13 Up 1 11.75 14

Property 3.45 4.26 23.5% 8 2 4.23 10Sales 2.56 2.20 -14.1% 33 0 2.24 33Tobacco 0.14 0.23 64.3% 12 12 0.16 24Ind. Income 2.56 3.20 25.0% 12 2 3.19 14Corp. Inc. 0.49 0.42 -14.3% 23 2 0.46 25Curr. Chgs. 3.15 3.22 2.2% 29 2 3.05 31

Own Rev's 16.37 16.71 2.1% 21 2 16.53 23Fed. Rev. 4.05 3.56 -12.1% 38 -1 3.60 37

Wis. Wis. '07

Future years ?


The state of state finances


State finances vs. others (NASBO)

■ Surpluses % spdg. 2008 2009 ▪ Wisc vs. avg. 1.0% vs. 8.60.7% vs. 4.7 ▪ States > WI 49 41 ▪ Memo: MN, IA in 2008 ~ 11.0%

■ Spending % inc. 20102011 ▪ Wisc. (pre-lapse) +5.3%+5.2 ▪ 50-state avg. -6.8% +3.8%

43 cut 22 < +2%■ 2010-11 tax increases ▪ Only five states > in raw amt. (inc. CA, NY) ▪ Income tax hikes: 1 of 12 in ’10 (6 cut), 1 of 3 in ’11 (7 cut) ▪ Tobacco: 1 of 17 in ’10, 1 of 7 in ’11 ▪ 6 states incr. corp. income tax ‘10 (12 cut); 3 in ’11 (9 cut)


Wis. Fin. Stmts ($b), GAAP

Outsider’s view of results, ‘09 (GAAP)

-2.46

-2.42-2.28

-1.27

-0.83

-1.21

-2.24

-1.93

-2.15

-2.44 -2.50-3.0

-2.0

-1.0

0.098 00 02 04 06 08 10e

$2.71 billion

Other states?


State finances: Current budget

55.99

26.27

62.19

26.67

0

20

40

60

GPR All-Funds

+1.5%

+11.1%

$b

2007-09

2007-09

< ?! >

2009-11


State fiscal future: Structural issue

1,232

2,511

11 rev (+ 12)


Future ‘recovery’ dividend? (Delusion?)

“ … the pace of the recovery is expected to slow and will not return to pre-recession levels until 2013 . . .” − DOR, 8.20.10

Projected growth in personal income

CY WI-May WI-Aug US-Aug’10 3.0% 2.5% 3.2%’11 4.6 4.4 4.7’12 4.4 4.3 4.8’13 4.4 4.1 4.8

Why this matters.


Structural deficits + slow growth =

■ GPR tax revenues (2010-11) $12.88 billion

■ Pers. income growth ’11 (4.4%) ’12 (4.3%)

■ 12.88 x 5% = $644 million [?!]

■ Structural ‘deficit’ ~ $1.23 billion


■ One-time money and tricks?Transportation? Injured patients comp?

Stimulus?Recycling, utility public benefits? Tax

credits?!

■ Spending cuts?Big five: corrections? UW/techs? School

aids?Shared revenues? Medicaid (see slide)?!

■ Revenue increases? Rhetorical vs. real changes■ Debt?■ Unmentioned, scary stuff?

Options overview


395.9

1,084.9

854.8

776.4

546.6

735

464

217350

313

179

0

250

500

750

1,000

98 99 00 01 02 03 04 05 06 07 08 09

Total

Family/BC

Other

Participants (000)

Medicaid:

’98: 1/13’08: 1/5

MA deficits, fed help?

Autopilot driving budget


■ Enacted in February$1.14 billion (‘09-‘10-‘11)

■ Added taxes:$1.9 billion (‘09-’11)

■ Added fees: $240 million

■ Totals:Three-years: $3.0+ billion

Revenue increases?


■ Corporate income e.g. combined reporting, throwback

■ Individual incomeTop rate up, cap. gains newsCredits, but small, odd ‘mix’

■ Tobacco (but . . .)■ Hospital, etc. taxes■ Sales: ‘iPod’

Low-hanging fruit picked


State finances and politics

■ 3D control to at least 1R, perhaps 2R??

■ Split governance: the good and the bad

■ Issue approaches?─ K-12 education (kids/unions vs. tax relief)─ Medicaid─ Local aids─ Higher education─ Prisons─ Tax, budget policy


164.7200.2

256.8

153.4

539.5

365.2

282.1

0

100

200

300

400

500

91 95 99 03 07

Correct'n s

MA (Fed+St)

*School Aids/Crs.

cpi

Does legislative make-up matter?


Harder choices?

■ Compensation: health, retirement, med-arb.

■ Schools: consolidations? e-learning? pay for performance? grad. testing? charters? ‘choice’?

■ UW System? enrollment proj’s, retention probs, job availability, & market need, wage dynamics? hi. tuition/aid? tenure?

■ Local governments: aid/revenue trades?

consolidation/cooperat’n?

■ Reorganize, reconnect? e.g., co. human

services? tech. colleges? counties/towns?


Nothing else matters with an elephant in the room.Or two elephants.


Elephant #1: Electorate and elected

■ Public mood and politics:~70% state gov’t fair/poor job~60% state priorities: jobs/econ. + tax/spendno others >~10%

■ Political dysfunction: ▪ 10-15 years of fiscal denial (R and D)

▪ political careerism + leadership power + special interest allies

▪ protect status quo; major policy changes since 2000?

▪ Wisconsin leader?


Elephant #2: CBO 7.27.2010

■ “. . . US government debt held by the public has grown rapidly—to the point that, compared with the total output of the economy, it is now higher than it has ever been except during . . . World War II.”

■ “. . . deficits will cause debt to rise to unsupportable levels.” ▪ crowding out of private savings/investment leading to “lower output and incomes” ▪ Rising interest costs forcing program cuts and inability “to respond to unexpected crises” ▪ Higher marginal tax rates “would discourage work and saving and further reduce output” ▪ “increase the probability of a sudden fiscal crisis . . . during which investors would lose confidence in the government’s ability to manage its budget . . .

■ Wisconsin economic summits*The alternative fiscal scenario deviates from CBO’s baseline projections, beginning in 2010, by incorporating some changes in policy that are widely expected to occur and that policymakers have regularly made in the past

Elephant #2: The big train wreck

CBOJune 09

US GDP

Federal Debt Held by the Public Under CBO’s Long-Term Budget Scenarios (Pct. GDP)


Questions, quibbles, prayers?

The Wisconsin Taxpayers AllianceOur eighth decade of teaching and informing the press and public about how their government works, taxes, and spends.

Thank you for making our nonpartisan researchand citizen education possible.

www.wistax.org


Wisconsin attitudes (proprietary poll)

■ Wis. right/wrong track? (7.10) — Total: 34% vs. 58% (wrong); reg. voter (32-60) — R: 21% vs. 71% Ind: 31% vs. 62% D: 50% vs. 40% Union HH: 32% vs. 60%

■ Economy will get: 38% better, 40% same, 19% worse

■ Top priority of gov/legislature: Jobs/econ: 39%; taxes/spdg: 19%; health OR ed: 11% each

■ State gov’t doing fair/poor job: 68% tot, R 80%, I 73%, D 54%, union HH 73%

Documents

■ Wisconsin economic summits Wisconsin Economic Summits ■ 08.26.2010 Wisconsin’s economy and the state of state finances Confronting reality