“I haven’t seen it this bad in many years,” my pastor recently told me. The troubles he’s seen are the financial struggles of families coping with increasing costs for everything and wages that just don’t keep up. More people are seeking help wherever they can find it.
Many people attending recent town hall meetings shared with me just how difficult life is – jobs loss; high health insurance premiums; rising property taxes and the price of gas. Times are tough.
Families are cutting back, working harder, taking extra jobs and finding ways to stretch the dollars. Families are not alone in their struggles.
Just like a family, state government is trying to do more with less. The down turn in the economy affects the state too. People make less, buy less and the state takes in less money. The state must balance its budget. So something has to go.
Our state is facing a $650 million deficit in the next fourteen months. There has been much discussion about how to cut and what to do. The Governor and the two Legislative Leaders have been in negotiation for several weeks to find answers to the state’s financial problems.
Options sound much like those families face: Where can we cut state spending? Can we postpone some payments that are soon due? Are there savings we can use to fill the hole? Can we take out a loan (or bond) to cover part of the shortfall? Can we raise money some other way?
The options we have are colored by the decisions made in the past. The situation we find ourselves in today is, partly, the result of actions made by those who have come before us. For me, this requires learning about decisions by leaders who years ago helped create the situation we face today.
As a rookie Senator, I am just beginning to understand the state’s financial situation and the effects of decisions made by former lawmakers. What I have learned is sobering:
- Over the past ten years, Wisconsin has doubled its indebtedness – or principal-owed on bonds. Our total outstanding principal owed is over $8 billion.
- The state’s savings account or ‘rainy day fund” has been very low. In 2002, the fund was only $3,000. Governor Doyle worked to bring that number to $56 million today. This is a big step forward but the balance remains the second lowest in the Midwest as a percent of total general spending. Minnesota has over 7% of its general fund stashed away. Iowa and Illinois are close behind. Wisconsin has less than a half of a percent of our general fund in savings.
- In the face of the budget shortfall, the Governor has delayed payments of $125 million in short term obligations. He is not the first governor to act in this way. Both the Senate and the Assembly have agreed to delay another $125 in school payments. Although the delay is but a few weeks, it shifts the payment to a new budget year. This trend in shifting payment started long ago and has an effect on our state’s financial health.
- Moody’s bond rating agency recently revised its outlook for Wisconsin’s bond rating from stable to negative. Some of the factors considered are the indebtedness of the state, the size of the rainy day fund and the shifting of obligations from this year to the next.
- The state’s bond rating is Aa3. Only two states – California and Louisiana – have a bond rating lower than Aa3. This means our cost of borrowing money is higher than most neighboring states.
- The state is paying more in interest. For example, the debt on transportation revenue bonds has more than doubled in the past ten years.
When we delay payment, the bill eventually comes due. When we increase our debt, our bond rating goes down - just like a credit rating. When it costs more to borrow money, we have less to spend on services. Or worse, we are tempted to borrow even more money to pay for services.
These conditions are not new to the state although it is disconcerting to learn about them for the first time. Just like a family, we are where we are partly because of the decisions made in the past. We can only do so much today and we must work with the situation in which we find ourselves.
The decisions are difficult. There are no easy answers. Tough times require tough decisions. Sometimes one of the toughest parts of the job is getting the information to be able to make wise choices.
It is through learning of the effects of our past mistakes that we begin to understand the real impact of the choices we make today.