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Other views: State not ready for downturn

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Todd A. Berry
Friday, August 19, 2016

With partisan primary elections over and legislative candidates making their final push for your vote, now is the perfect time to ask them how they think Wisconsin can better prepare for its next financial emergency.

It’s a question most would rather not answer. State politicians like to promise tax cuts and increased funding for favorite programs. Planning for the unexpected doesn’t hold much appeal.

Yet experience shows that Wisconsin’s lack of financial planning has led to a cycle of repeated budget crises that have in turn resulted in spending cuts and tax increases. Many of these could have been avoided if state reserves were healthier.

Wisconsin has roughly doubled the amount in its “rainy day” fund since 2008, the start of the Great Recession. But that increase has occurred due only to statutory requirement; there have been no deposits in the last two years. Moreover, the balance is below $300 million, or less than 2 percent of annual spending, not enough to withstand a major downturn.

According to comparative budget information for the 50 states, Wisconsin remains near the bottom for fiscal preparedness, with enough cash in reserve to pay bills for about nine days. That would be risky for a family, and even more risky for a state.

With long-term economic prospects becoming increasingly uncertain, voters need to ask candidates what they’ll do to shore up state reserves. A law or constitutional amendment requiring reserves of 5 to 10 percent of expenditures, which could be tapped in times of serious economic crisis, would help.

So, too, would a law requiring officials to set aside a specific amount at the start of each biennial legislative session—before the budget bill is introduced and appetites for spending increases and tax cuts start to build.

Ahead of the November election, and certainly before the 2017-19 budget is unveiled next year, state officials need to take steps to shore up their still inadequate reserves. Not only will this reduce our fiscal vulnerability to crisis, it will improve our standing with national firms that dropped Wisconsin’s bond ratings more than 15 years ago—and never raised them.

Planning for hard times isn’t something anyone enjoys. But, as the saying goes, failing to plan often means planning to fail. Financial planners advise families to keep six months of savings on hand in case of emergencies. Wisconsin would benefit from similar advice.

Todd Berry is president of the Wisconsin Taxpayers Alliance.

 



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