Study: Reckoning at hand

Most of Wisconsin — and the Legislature — may be riveted by the debate over balancing the $1.1 billion deficit the state faces for the current 2001-2003 biennium.

But regardless of how the Legislature solves this year’s budget problems, the state will face even more difficult problems next year, according to a government finance expert at the La Follette School of Public Affairs.

In a new report, Professor Andrew Reschovsky demonstrates that, even under very conservative assumptions about spending growth and reasonably optimistic assumptions about revenue growth, the state will have a huge structural deficit next biennium, and unless the state raises taxes or cuts public services, these structural deficits will continue over the next eight years — through 2010.

Reschovsky defines a structural deficit as occurring whenever the amount of money needed to maintain current services exceeds the revenue generated by the state’s current tax system. He said that the Legislature has already decided that most of the current $1.1 billion deficit will be dealt with the same way deficits have been handled for some time – by short-term budget fixes.

“A series of fortunate circumstances, in particular, stronger than expected economic growth, have allowed us to put off the hard choices necessary to eliminate the structural deficit,” Reschovsky said. This year, the Legislature will use the entire tobacco settlement to eliminate the deficit. He added: “Using one-time sources of funds and budget gimmicks does nothing to reduce the underlying structural deficit.”

Reschovsky warned that “the day of reckoning” comes next year. “We will no longer be able to put off the hard choices that will be necessary to eliminate our structural deficit,” he said. “The state must choose whether we want to reduce the existing level of public services or whether we are willing to pay more money in taxes and fees in order to continue receiving the public services to which we have become accustomed.”

He estimates that over the course of the 2003-05 biennium, the structural deficit will be $1.75 billion (measured in today’s dollars).

Reschovsky made his estimates by reviewing the five largest programs paid for by general funds: K-12 school aid, Medical Assistance, UW System, municipal shared revenue and the prison system. He made separate estimates of growth for each and for all other state government services. He also assumed that by operating more efficiently over the next decade, the government will be able maintain public services, while restraining the growth of spending to a rate that is one-third of the rate by which state spending rose between 1989 and 2001.