Saturday, November 22, 2014

Wisconsin deficit already spiraling higher

The deficit that resulted from Thursday's Wisconsin Department of Administration's summary of budget requests and revenue projections were bad enough. To review, $197 million must be made up in the next 7 months, and over $2.2 billion more in the 2 years after that. But those numbers may be soft-selling how badly the situation really is, and Friday's release of October's numbers from the Wisconsin Department of Revenue indicate that the deficit may grow larger.

At first glance, the October figures look disastrous, as total revenues were down 3.7% compared to October 2013, and income taxes were down a stunning 11.0%. But I also know that approximately $55 million a month is being reduced due to the changing of the withholding that began in April, so I add in that amount, and...the numbers still aren't good. Income taxes still end up down 3.7% compared to last year, and adjusted total revenues were up less than 1%. That's well behind the 5.0% that the DOA projected for revenue growth in this fiscal year, and even fell behind the 3.5% that the LFB originally projected back in May. Based on the first four months of FY 2015, I projected all major components of the State of Wisconsin's revenues, to see where we're on track to end up at June 30, and the numbers I am comparing this to are the figures from the 5% revenue gains that were projected in the DOA report.

Projected Wisconsin revenues vs. DOA projections FY 2014-15
Individual Income Tax- DOWN $306.3 million
Sales Taxes- UP $33.5 million
Corporate Taxes- DOWN $19.2 million
Excise Taxes- In line, I'll say even.
Other taxes- No real difference

Being $292 million short on revenues from the DOA's rosy scenario would mean that Wisconsin would have a $489 million shortfall in this fiscal year, much more than the potential year-end deficit that Scott Walker faced in 2011 when he claimed the state was "broke" and had to institute Act 10 as a result.

In addition, if that revenue shortfall were to hold, it would lower the base in the following years, and cause those years to have higher budget deficits than the massive ones the DOA is already predicting. If you keep with the 2.9% average revenue increase that Wisconsin has seen over the past five years (straight from otherwise-BS assumptions that the GOP's Co-Chairs of the Joint Finance Committee pulled out before the election to claim the budget was in "surplus"), the deficit numbers for the two years in the next budget are as follows:

Deficit in Fiscal Year 2015-16 $1.364 billion
Deficit in Fiscal Year 2016-17 $1.575 billion

Obviously, there's a long way to go between now and June 30, 2017. But if there is no turnaround in the downward trends on revenues or the increasing amount of expenses (BadgerCare Plus enrollments have consistently gone up in the 6 months after Walker's Obamacare-related changes happened in April 2014), those bad numbers could worsen, making it extremely likely that there will be some kind of budget repair bill to fix the deficit for the 2015 Fiscal Year.

That's not the only bad budget news that broke on Friday, as WKOW's Greg Neumann posted an excerpt of his interview with Wisconsin DOT Secretary Mark Gottlieb, who previously asked for $751 million in tax and fee increases to pay for needs in the upcoming budget. Neumann quotes Gottlieb in a story on Friday as saying the Transportation Fund deficit is now as high as $900 million, with the assumption of that DOT budget is to fill much of that hole with hundreds of millions of dollars in transfers from the General Fund. With the General Fund's red ink growing by the day, it becomes less likely that those funds can be transferred over to the DOT, and that means there would have to be even more tax increases and/or cuts in aid and projects at the DOT as a result.

Stay on this story, because you can bet the fiscally-ignorant and paid-off Eastern Wisconsin media will continue to ignore what is truly becoming a fiscal crisis in Wisconsin. And if the Dems in Wisconsin had any guts or smarts, they'd be blaring this story wide, and pre-empting potential one-time gimmicks that Walker might try to plug this exploding deficit.

Friday, November 21, 2014

Wisconsin jobs up in October, still lagging behind U.S., neighbors

Yesterday featured another monthly jobs report from the Wisconsin Department of Workforce Development. In general, it was a decent number, with 4,000 private sector jobs created in October 2014, while September’s private sector jobs total was revised down by 300, for a total increase of 3,700. Not bad, but slightly below the national rate of growth, since the U.S. as a whole added 209,000 private sector jobs (214,000 jobs overall) in October, and the previous months were revised up.

When you plug those figures in, it means that while the Wisconsin numbers went up in October, the Walker jobs gap has grown yet again, now just below 71,800 private sector jobs, and 66,000 jobs overall.

Wisconsin’s job growth was strangely uneven in October, as manufacturing employment went up by 5,400 seasonally-adjusted jobs, but the rest of the state’s private sector LOST 1,400 jobs, and the “Professional and Business Services” sector dropped 3,500 jobs last month. It’s the sort of report that makes me want to see where the November figures end up, because it almost seems like the seasonal adjustment for October threw a lot of figures off.

Job change, Wisconsin Oct 2014, non-seasonally adjust. vs seasonal adjust.

Manufacturing +400 non-seasonally adjusted , +5,400 seasonally-adjusted
Prof.-Bus. Services -500 n.s.a, -3,500 s.a.
Leisure-Hospitality -7,000 n.s.a, +1,500 s.a.
Trade +3,600 n.s.a, -1,300 s.a.
Government +12,900 n.s.a, -3,900 s.a.

While Wisconsin’s drop in unemployment to 5.4% is also nice (particularly given that it’s in a month where the participation rate went up), that merely matches the 0.1% drop nationwide, and the state stays 0.4% below the national rate. The 2.3% drop in unemployment in Wisconsin during the Age of Fitzwalkerstan isn’t near the 3.3% drop in the rest of the country since January 2011, as the Obama Recovery has continued. And with the Bureau of Labor Statistics releasing the monthly jobs figures for all states today, we can see that Wisconsin's job gain was less than a majority of our Midwestern neighbors, and we were especially dwarfed by our neighbors across the St. Croix, who added more than twice as many private sector jobs as we did.

Change in private sector jobs, October 2014, Midwest
Minn +10,200 private, +9,500 overall
Ohio +8,400 private, +1,000 overall
Mich +7,200 private, +7,200 overall
Ind. +5,300 private, +7,300 overall
Wis. +4,000 private, +100 overall
Iowa +2,300 private, -200 overall
Ill. -2,000 private, +900 overall

Democratic-run Minnesota has now gained 46,300 private sector jobs over the last 12 months, while Wisconsin has only created 31,000, despite us having a higher population and job base than Minnesota (hopefully we can at least beat them on the football field a couple of time in the next 8 days). And Wisconsin is still barely out of the cellar for private sector job growth in the Midwest over the 45 months that Scott Walker has been in office, just nudging past Illinois in recent months.

These overall stats show why that despite the last couple of months going well in Wisconsin, it's sickly hilarious to hear Scott Walker try to talk up Wisconsin’s job growth on his national “pleae take me seriously for President” tour. Because a minute of research from national journalists would show Wisconsin still badly lagging the Obama Recovery, and much of its Midwestern neighbors, since the Age of Fitzwalkerstan began in January 2011.

Thursday, November 20, 2014

Right on cue- at least $2.4 billion in deficits for Wisconsin

Yep, just as I suspected. The Wisconsin Department of Administration summarized the state’s budget requests and estimated revenues for the next budget, and what do you know? We have a $2.2 billion deficit in the next budget, along with another $197 million to make up in the next 7 months! This is the DOA report that I talked about earlier this week, and you can click here to see all of the nuts and bolts from it.

To review, we ended 2014 Fiscal Year on June 30 at a net balance of $516.9 million. And now with the DOA report, the deficit blows up this way.

ENDING FY 2014 BALANCE +$516.9 million
ENDING FY 2015 BALANCE -$132.1 million
MINUS required reserves -$65 million
TOTAL TO BE MADE UP BY JUNE 30, 2015 $197.1 million

2015-17 budget
FY 2016 REVENUES $15,540.4 million
TOTAL EXPENSES $16,636.4 million
DEFICIT IN 2015-16- $1.096 BILLION

FY 2017 REVENUES $16,125.5 million
TOTAL EXPENSES $17,243.6 million
DEFICIT IN 2016-17 $1.118 BILLION

And by the way, those revenue numbers from DOA are quite rosy. They anticipate a 4.98% increase in revenues for Fiscal Year 2015, while the Legislative Fiscal Bureau has only estimated a figure near 3.5%. I estimated adjusted revenues to be up 3.74% based on the figures through September (we’ll see October’s numbers tomorrow), and if that 3.74% holds up for the rest of the fiscal year, the amount that needs to be filled by June 30, 2015 increases to around $391 million - above the $279 million in the state's rainy day fund.

With that in mind, I’ll take you back to a document that the LFB wrote two months ago, in light of the $281 million revenue shortfall that hit in Fiscal Year 2014, which followed two rounds of Koo-Koo tax cuts that Gov Walker signed onto.
Revenue Shortfall Provision. Section 16.50(7) establishes a separate process that must be followed if there is a larger revenue shortfall. Under this provision, if at any time after enactment of the biennial budget, the Secretary of Administration determines that previously authorized expenditures will exceed revenues in either year of the biennium by more than 0.5% of the estimated GPR appropriations for that fiscal year…the Secretary is required to immediately notify the Governor, the presiding officer of each house of the Legislature, and the Joint Committee on Finance of the revenue shortfall.

Following this notification, the Governor is required to submit a bill to the Legislature containing recommendations for correcting the imbalance between projected revenues and authorized expenditures. Further, if the Legislature is not in a floor period at the time of the Secretary's notification, the Governor is required to call a special session of the Legislature to take up the matter of the projected revenue shortfall and to submit a bill dealing with the shortfall to the Legislature for consideration at that special session.

It is important to note that s. 16.50(7) gives the Secretary of DOA discretion as to how and when the determination of a revenue shortfall is to take place. Once that determination is made, the Governor is required to submit recommendations correcting the imbalance between revenues and expenditures. However, the statutes do not specify a time frame for either the DOA Secretary’s determination or the submission of the Governor’s recommendations.
But don't fear, Walker DOA Secretary Mike Huebsch is claiming that there won’t be a need for such a budget repair bill in the coming months, because they’ll use currently-undisclosed methods to close the budget gap.
The challenges of fiscal year 2014-15 are largely a result of adverse federal tax law changes commonly referred to as the federal fiscal cliff, which impacted many states. This led to tax planning distortions that were a consequence of both the 3.8 percent surcharge on investment income included in the Affordable Care Act and the expiration of capital gains tax reductions, both of which took effect in 2013 (both moves haven’t exactly crashed the stock market, now have they?). This meant that in 2012 taxpayers divested at the expense of future years, negatively impacting state tax revenues. This was a risk my department highlighted in this report two years ago (this didn’t stop Walker and the WisGOPs from cutting taxes based on that one-time bump in revenues), and referenced in the Annual Fiscal Report last month.

However, through continued prudent management of agency resources, the shortfall noted above will be addressed and the current biennium will end in balance.
Huebsch uses the always-fun “uncertainty” excuse, which gets a double “BULLSHIT” because it not only does it blame tax changes due to the implementation of Obamacare that have already been in effect for more than one fiscal year, but in addition, federal tax revenues went up by 8.9% in the just-completed federal fiscal year, and the country's having its best job growth in the last 15 years. Yeah, not really buying into that one.

And oh yeah, the state has to give an additional transfer of $25.75 million to the Transportation Fund this fiscal year (because Walker's DOA held it back in the last fiscal year to make the FY 2014 balance look better ahead of the election), and has passed a 4% increase in many local road and transit aids that has to be paid off. So the real question is how will the Walker folks intend to make up the few hundred million dollars in unspecified cuts that will undoubted have to happen, and when will they tap the rainy day fund to pay off some of their fiscal recklessness.

Hmm, maybe some national reporters might want to ask that of our fair Governor as he’s galavanting around the country while his state goes broke, claiming he hasn't raised taxes while Walker's DOT asks for $750 million+ in tax increases and higher fees to expand expressways as a payback his buddies at the Road Builders. There are a lot of us in Wisconsin who pay Scott Walker’s salary that’ll be interested in these answers.

Tuesday, November 18, 2014

Bucks arena- jock tax ups and downs, and JournalComm's big payoff

In light of last week’s attempted shakedown of billionaire Milwaukee Bucks owner Marc Lasry by pissant Assembly Speaker Robbin’ Vos, (leading to Lil’ Vossy getting skewered by Bruce Murphy today at Urban Milwaukee), let’s get back to talking about the prospects for a new Bucks arena.

When the change in ownership happened last April, Lasry and fellow new Bucks owner Wes Edens indicated that they would pay $100 million out of their own pockets toward a new arena, and outgoing Bucks owner Herb Kohl said he’d chip in another $100 million himself. There are also indications that naming rights and/or other investors could contribute another $100 million toward the project, making the total private investment reach $300 million. The rest would likely be made up by some kind of public funding or incentives, and estimates indicate that the total cost of a new Bucks arena would be between $400 million to $500 million, which means the public would be on the hook for $100 million to $200 million.

With that in mind, the Wisconsin Legislative Fiscal Bureau released a report last week which looked into the possibility of using what’s known as a “jock tax” to pay for the public funding side of the Bucks arena. I mentioned the jock tax issue in relation to the Bucks arena a few months ago, but what it basically does is split up the salary of athletes and other entertainers into the number of days they are in a given state, and then taxes them accordingly.
As an example, assume that an NBA player that is a resident of Florida has 210 duty days in a year, and two of them are in Wisconsin. In this case, the player’s allocation percentage would be 0.95% (2 divided by 210). Therefore, 0.95% of the player’s compensation for services rendered as a team member would be taxable in Wisconsin. If the player’s total compensation for services rendered to the team was $2 million, then $19,000 of that compensation would be taxable in Wisconsin. However, if the player was a resident of one of the four [tax] reciprocity states (Illinois, Indiana, Kentucky or Michigan) none of his compensation would be taxable in this state.

This office obtained information regarding NBA players and other employees who were potentially subject to Wisconsin income tax as of December, 2012. After conducting a search of tax returns filed for tax year 2012, the Department of Revenue indicates that these individuals, in the aggregate, paid state income taxes of approximately $10.7 million in that year.
The LFB then projects out how this may work in terms of generating funds for a new arena, which they assume will be built by the state borrowing the money and then paying back the costs via the jock tax.
…Assuming a flat, 20-year repayment structure on the bonds issued for a new stadium facility for the Milwaukee Bucks, $10.7 million in annual revenues associated with the estimated amount of existing state income taxes on NBA players and other employees subject to the state’s individual income tax could support approximately $150 million in state general obligation bonding, based on current interest rates. The total 20-year cost to repay the $150 million in general obligation debt would be $214 million, which includes $64 million in interest costs.
$150 million toward the arena would likely be enough to make the project whole, and with the NBA’s salary cap likely to go up significantly in future years due to the huge TV contract that it signed last month, that also makes it likely that a jock tax would add even more than $10.7 million a year down the road, meaning that it would pay for any overruns, or the jock tax could be retired in less than 20 years.

Now here’s the downside to any type of jock tax being put in place – the state wouldn’t be levying any additional tax on these NBA players and personnel, it’d merely funnel the money into a separate account that can only be used toward a Bucks arena. It essentially would decrease the revenue available for state government, since those millions of dollars can’t be used for other General Fund needs like it is now. So while it would keep the general taxpayer’s money out of the funding equation for the Bucks arena, what’s concerning to me is that this move would still have statewide effects. The $10.7 million+ of lost revenue would result in cuts elsewhere, or it would have to be made up through some other kind of tax increase or other form of added revenue. And when we may have an estimated $2.5 billion budget deficit already in the next budget, adding to the red ink might not be a great plan.

The location of a Bucks arena is obviously another key component to this question. It was reported by Milwaukee Magazine’s Jim Owczarski last month that the team is considering a purchase of the current Journal Communications building across 4th Street from the Bradley Center and the building next to it on State Street, with the arena possibly facing the Milwaukee River across 3rd Street. Owczarski quotes the local Milwaukee alderman in the story as seeming to prefer the JournalComm site to building on the site of the old Bucks arena at the MECCA (now known as the UWM Panther Arena).
An arena that has sightlines to the green space of Pere Marquette Park and the river is appealing to the Bucks ownership group.

Fourth District Ald. Robert J. Bauman said that while he has no direct knowledge of any negotiation between Journal Communications and the Bucks – "I don't know that specifically, but I'm not surprised – it's a logical area of exploration for them" – he did say Journal Square makes sense as a location for a new multi-use facility.

"If that site is big enough by itself, then I think that's a very viable option," he said. "If they have to span 4th Street and also demolish the (UWM Panther) Arena, as well – that's going to be a big, big political argument.
Putting the arena in that spot definitely could look cool if done right, Owczarski has a new blog post up today that gives an idea of how the arena might look, with the arena floor perhaps being underground.

The corporate side of this potential deal has some intrigue as well, as the soon-to-be-merged Journal Communications likely could use the money from a potential sale of its headquarters, and JournalComm needs Bucks games on AM620 to keep listeners in winter. This is especially true considering that the soon-to-be-Scripps-owned Station of Sykes now has no Badger sports, which means at least a 2-month gap of no major sports programming between the end of Packer season and Opening Day at Miller Park if the Bucks leave.

When you put these two items together, it’s no surprise that JournalComm’s paper and media have been pushing hard for this new Bucks arena, as they stand to get quite a payoff from it (yet another reason not to trust their outlets). But given that the 2017 deadline is approaching for the Bucks to have an arena deal in place, or else the NBA could buy the team back and likely would move it elsewhere, we will get to find out soon enough just what the entire package looks like, who’ll be paying up, and who’ll be getting paid off.

DOT budget part 2- How it'll drive our deficit higher

This is the second part of my analysis of the Wisconsin Department of Transportation's budget request, and its plans to use General Fund tax dollars to fund items in the Transportation Fund.

The first part I want to bring up relates to funding of transit. Transit systems are currently given state assistance through the Transportation Fund, and while it appears the DOT budget request plans to keep Transit in the Transportation Fund (unlike what Gov Walker has requested in his last two budgets), General Fund money will be used for the state's funds. The argument the DOT gives for doing so goes like this.
The purpose for transit operating aids in Wisconsin is defined in section 85.20(2), Wis. Stats., in part to promote the general public good. While this statutory purpose was defined years ago, it has never been more evident than today. With changing demographics, lifestyles, and societal influences, transit services have grown beyond transportation and mobility to truly serving the general public good –jobs, economic development, education, commerce, and health. Therefore, it would be seem that funding for state aids serving the general public good should come from general public revenues.

Transit services do not however provide any revenues to the state’s Transportation Fund. User fares go toward the costs of the service and the systems themselves pay few state Transportation Fund revenues. Funding transit services with Transportation Revenues, therefore, directs fees paid by users of other modes of transportation to a service serving the general public good. Funding transit operating aids from the state’s general fund, rather than the Transportation Fund, would further strengthen the concept of and relationship between user fee revenues and investments in transportation infrastructure.
In other words, since transit operators generally don't pay much if any Transportation Fund taxes (city bus systems generally are exempted from paying gas taxes), they don't need to be getting Transportation Fund dollars. Hmmm.....

With this in mind, the DOT budget request asks for $275.8 million in added General Fund money, with almost all of that increase being used to fund transit and some intriguing new transit proposals that are in the budget request (such as $30 million to help transit systems buy new vehicles, and $20 million to establish new routes and/or re-establish ones which had to be cut in recent years). But this may prove quite difficult to fully fund, as the General Fund pays for a lot more than just Transit Aids, which means yet another agency has to try to muscle in and get a piece of what are already very limited funds (you’ll see how limited in a bit).

The other spot involving General Fund money paying for Transportation involves a transfer from the General Fund into the Transportation Fund, where the money can be used for any Transportation Fund program. This number was set at 0.25% of General Fund taxes in 2011 (item Number 5 in this document has more info on it), and $110.3 million was added on top of that in the last budget. Now, the DOT budget request wants to up the amount even further, and in doing so gives an ominous warning about future General Fund revenues.
Amend s. 16.5185 Wis. Stats. to increase the transfer from the General Fund to the Transportation Fund from an amount equal to 0.25 percent of the moneys projected to be deposited in the general fund designated as “Taxes” in the summary in s. 20.005 (1), to an amount equal to 1.00 percent.

The effective date of this change is June 30, 2016….

Under current law gross state revenue for the Transportation Fund from all sources, not including proceeds from the sale of GO and TR bonds is expected to fall 2.6 percent in the 2015-2017 biennium compared to the 2013-2015 biennium. Available state revenue is expected to drop 4.3 percent compared to the 2013-15 biennium. As a result, the Department is proposing an increase to the existing continuing General Fund transfer first authorized in 2011 Wisconsin Act 32.
Why would state revenue drop 4.3% compared to this current budget? Is the revenue picture even worse than the LFB has indicated it is? Are there some other kind of tax giveaways to come or funds being blocked off that lowers the amount of funds available for use? That’s the kind of statement that leads to more questions than answers, and it gives me another reason to give a look at what the Department of Administration will hint at when it releases its summary of budget requests and revenues later this week.

What we do know is that between the proposals that would use of GPR funding for Transit, and the increased transfer of General Fund money for the Transportation Fund, this means the total amount of General Fund money being used by the DOT would be upped to $548.36 million over the 2015-17 budget. That's up $275.8 million above the adjusted base amount in the budget, and $476 million above what the LFB estimated for a transfer when it estimated the structural deficit back in May. So let's add that $476 million to the $2.1 billion General Fund deficit that is already in existence for the next budget, so that puts us around $2.5- $2.6 billion in the red for this upcoming budget in the General Fund. In addition, if the warnings of a state revenue drop are correct, then that deficit will blow much higher, because the $2.5 billion deficit not only assumes all budget requests would be paid for, but it assumes revenue growth of 2.9%. RUH ROH!

The options to dig out of this budget mess were limited even further this November. That’s because the constitutional amendment approved by voters on November 4 disallows any transfers back from Transportation to the General Fund if the General Fund runs short or if the Transportation Fund is overfunded. So the General Fund is now unable to be bailed out if the Transportation Fund’s tax and fee increases (mentioned in this post) get more money of out Wisconsinites than expected, or if costs end up lower for the many road projects that are proposed. That’s a huge reason why I voted NO on that issue, and the siloing off of those funds could come home to hurt the state’s finances in a big way over this next budget, if the DOT budget request is any indication of where the state truly stands.

This is why we need to be vigilant over whatever numbers come out in these coming months, because the hints from the DOT's budget request and plans to transfer funds from the General Fund to the Transportation Fund indicates a huge budget deficit, likely worse than the situation Scott Walker faced when he took office in 2011- and the "tools" of Act 10 have already been used up. Keep your eyes peeled and be ready to follow the bouncing balls in what is sure to be a budget built on rosy assumptions and a lot of shell games.

Monday, November 17, 2014

The DOT budget- Pay up if you want those Transportation projects!

One of the big headlines in Wisconsin over the weekend that didn't involve the dominance of Melvin Gordon III or Aaron Rodgers dealt with the Friday afternoon release of the Wisconsin Department of Transportation's budget request and plans for the state's Transportation Fund. There is a lot to go into here, and I want to split up my analysis into two parts. The first will deal with gas taxes and registration fees related initiatives that strictly within in the Transportation Fund. The second deals with the large amount of General Fund money that are slated to be transferred into the Transportation Fund, which not only will change how transit and other DOT programs get funded, but also will put an extra strain on a General Fund budget that already seems slated for a huge deficit over the next 2½ years.

On the Transportation Fund side, it started the 2015 Fiscal Year on July 1 with just under $117 million in the black. However, that number is expected to go down to barely over $1 million by next June 30, because of an anticipated 4% increase in costs without a matching increase in revenues. With huge needs in the 2015-17 budget such as increased payments for the Zoo Interchange and I-94 projects in Southeastern Wisconsin, and needed increases in shared payments to cash-strapped local governments, the DOT has developed several initiatives in its budget request that are designed to raise more money for the Transportation Fund. (you can click here for more details, and if you feel like reading all of a 582-page document).

One initiative sure to get plenty of attention is the proposed increase in gas taxes, which fits the DOT’s Transportation Finance and Policy Commision’s call in 2013 for a nickel-a-gallon raise. While it’s not a copy of Governor Walker’s trial balloon of using an excise tax based on price instead of the flat 30.9-cent-a-gallon fee on gasoline that we use today (a silly idea that I ripped when it came out last month), the DOT’s proposal has a price-based element included in it.
Under this proposal, the existing state excise tax for gasoline and diesel fuel consumed for highway use is reduced to $0.135 for all grades of gasoline and $0.163 for diesel fuel intended for highway use. A new variable component based on wholesale price is added. For purposes of calculating a new 8 percent variable tax component of the excise tax, a permanent minimum wholesale price of $3.081 per gallon for diesel fuel and $2.800 per gallon for all grades of gasoline would be established beginning September 1, 2015. This proposal increases the annual cost of operation for a mid-size sedan by about $28 annually in Wisconsin.

Under this proposal, on April 1, 2016, and each April 1 thereafter, DOR is required to adjust the cents-per-gallon tax resulting from the 8 percent tax applied to the average annual wholesale price of gasoline and diesel fuel. The average annual wholesale price of gasoline and diesel fuel in Wisconsin will be determined by DOR based on wholesale price information obtained from the federal Energy Information Administration. Increases to the total tax rate on motor vehicle fuel due to changes in the annual average whole sale prices of gasoline and diesel fuel may not exceed five percent on April 1, 2017 and each April 1 thereafter. The Department of Transportation is required to publically announce the new rate.

With a tax mechanism in place as outlined above the sum of the fixed rate tax and the 8 percent tax applied to a minimum wholesale price of motor vehicle fuel can never be lower than $0.359 for gasoline and $0.409 for diesel fuel. Under this proposal all refunds of motor vehicle tax allowed under current law and all exemptions to motor vehicle fuel tax will remain in effect.
There are two parts of the statement that confuse me. First, is this bill requiring only a tax floor or does it include a price floor on gas? There’s clearly a tax floor of 35.9 cents for gas and 40.9 cents for diesel, but the language about a “permanent minimum wholesale price” gives me pause. Right now, wholesale gasoline futures are trading at just over $2 a gallon, and diesel is in the neighborhood of $2.50. That is well below the “permanent minimums” of $2.80 for gas and $3.08 for diesel that is listed in the DOT budget request, and not far off of the after-tax pump price of $2.85 I saw this morning in Madison. It’s one thing to have a 5-cent raise in the gas tax, but it’s entirely another to make Wisconsin motorists pay a price well above the rate they’d pay in almost any other state. I’d like to see that possibility investigated and the language cleaned up. But otherwise, it’s not a bad idea- if you think it’s a priority to spend money to fix and expand roads, you’d better be paying for it (fiscal conservatism at its finest!).

The gas tax increase is expected to add $358.3 million to the DOT’s coffers in the next two years. Another bump up in the DOT’s revenues involves $378.9 million that would come from a new fee that Wisconsinites would pay when they first buy a vehicle.
The Department is requesting the creation of a fee for new passenger vehicles (automobiles, vans, sport utility vehicles, light trucks, motorcycles) to address critical transportation priorities.

This fee would be collected at the time of initial vehicle registration. The fee would be calculated at 2.5 percent of the manufacturer’s suggested base retail price (MSRP), exclusive of destination charges.
Basically, it’s a one-time shot that’s paid when you buy a car, and the DOT argues that Wisconsin’s relatively low sales tax of 5% is a mitigating factor when you compare this fee to neighboring states. However, the kicker is that the sales tax is General Fund money, while this license fee is solely for the use of the Transportation Fund.

It also will likely encourage some individuals that have dual residency between Wisconsin and other states to license that vehicle in the other state, causing Wisconsin to lose the license revenue entirely (for example, my aunt and uncle currently use their Vilas County address as the place of registration for their vehicles instead of in their home state of Illinois). One of the advantages Wisconsin has had over other states when it came to taxes is that we have traditionally had a much lower amount of registration fees, and that we didn’t have a sales tax that increased as the price of gas went up. Both of these advantages would be pretty much go away under this plan.

There’s also a theme of equity across the spectrum of vehicles in this request. Grabbing a lot of attention is the $50 added registration fee for owners of hybrid and electric vehicles, which the DOT claims will help to make up for the fact that those vehicles use less gasoline and therefore pay less into the system. But what hasn’t been mentioned is a $25 credit that would be given to owners of cars and light trucks that run on diesel. The DOT mentions that the number of these types of diesel-powered vehicles have increased by over 31% in Wisconsin since 2006, to nearly 83,000 today (by comparison, there are less than 48,000 hybrids and/or electric vehicles in Wisconsin), and the DOT argues that the users of these passenger vehicles should not have to pay the same price as an 18-wheeler that causes much more stress to the roads. The net change in fees from these two moves is estimated at an increase of about $2.3 million.

Obviously, there is much more in the DOT’s budget request,including modifications to fees for items such as motorcycles and oversize permits, as well as some rail initiatives. But I wanted to limit it to just those three items listed above to allow more time to go into detail on them. At least on the Transportation Fund side, I appreciate Secretary Mark Gottlieb and DOT staff being honest about what it would take to increase revenues to pay for the high wish list of highway projects and related needs. And even with all of these tax and fee increases, the DOT still projects to end 2017 with less than $4 million to spare- a rounding error in a $2.17 billion annual budget. As you can see, there is no free ride when it comes to building roads (at least not without another fed-funded stimulus coming along), and if these proposals are put into law, a whole lot of us will be paying more for upgrades in highways and maintaining local roads in Wisconsin.

Sunday, November 16, 2014

A fun snowy Saturday at the Camp

Yeah, it was snowing and sub-30 degrees yesterday, but it sure made for a cool view from under the upper deck yesterday at Camp Randall.

And it isn't very cold at all when you see your alma mater administer an epic BEATDOWN, and you get to see history being made.

From 17-3 down to 59=-17 up in about 2 1/2 quarters. And not against Little Sisters of the Poor, but a nationally-ranked Nebraska team that was 8-1 going into the game. That what a hell of a lotta fun to watch, and shockingly easy.

Let's see if the Pack makes it a complete sports weekend this afternoon. I know more than a few people that were pulling the Camp Randall/Lambeau "double" this weekend, including some guys I spoke to from Philly who made the trip down to Madison as a prelude to seeing their Eagles on the Frozen Tundra. Hope they enjoyed the Saturday show from Mel Gordon and company, and that they don't find the game today as enjoyable.