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Confronting reality
Wisconsin’s economy and the state of state finances
Wisconsin Economic Summits
■
Wisconsin economic summits
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08.26.2010
Overview
■ WISTAX: teaching, informing . . . angering
■ State economy & competitive position
■ State finances: past, present, future
■ Elephants in the room: #1 and #2
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Wisconsin economic summits
The state of Wisconsin’s economy
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Wisconsin economic summits
Creating, losing jobs
US vs. WI nonfarm jobs (SA), Jan 00 = 100 (Mo’ly)
106
12.0
US
104
10.5
102
99.8
9.0
100
7.5
98
6.0
96.7
4.5
WI
96
3.0
94
3.0
US - WI
■
92
1.5
90
2000
0.0
Wisconsin economic summits
2002
2004
2006
2008
2010
Productivity & wages
Avg. Earnings/Worker & GDP/Worker (WI % < > US)
0%
1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
-3.8%
-5%
-5.0%
-6.2%
Avg.
Earnings/Job
-10.9%
-10%
-12.7%
-15%
-12.9%
-13.2%
-14.8%
-20%
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Wisconsin economic summits
Productivity:
GDP/Worker
Gaining, losing employers
Pct. Change in No’s of Private Establishments
Third Quarter of Ea. Yr. Shown (BLS)
■
05-09
WI
-3.0%
v
Sector
All
01-05
WI
US
9.1% > 7.6%
US
5.2%
Construction
Manufact'g
6.6%
-2.4%
9.0%
-8.1%
-14.8%
-5.4%
-1.7%
-3.7%
All - Const'n
All - Manuf'g
9.5%
10.1%
7.4%
8.4%
-1.5%
-2.9%
6.0%
5.6%
Wisconsin economic summits
Big picture: “Product Wisconsin”
2.25%
2.08%
2.10%
Wis. % of US GDP
2.00%
1.93%
WI
1.90%
1.87%
1.86%
1.77%
MN
1.75%
1.77%
1.70%
1.50%
1963
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Wisconsin economic summits
1971
1979
1987
1995
2003
Strategic view: Wis. as ‘product’
^ wy
80
ak
"Stars"
40
tx
WI98
-60
IA
ny
va
ca
-40 ms ar|id
-20
sc
ky
-40
MI
"Dogs"
GDP pc
-80
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Wisconsin economic summits
20
IL
WI
GDP % chg
ma
0 MN
0
40
de 60
Competitive position? Energy costs
$/mill. BTUs, avg. comm/res/mfg.
US
$28
Electricity
$26.49
$20.16
$21
$16.85
$16.73
$15.74
$14
$7
$23.83
Nat’l gas
$11.76 US
$10.75
$9.27
$0
85
90
00
04
05
06
07
US avgs. = $28.75 e, $9.18 ng
WI electric > IA, MN; ~IL, MI
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Wisconsin economic summits
08
. . . Entrepreneurial activity: VC/worker
Investments/worker
$75
$67.68
$50
$28.04
$23.16
$25
$24.53
$0.57
$22.30
$20.33
$3.47
$0
90
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95
00
Wisconsin economic summits
04
05
06
07
08
WI
$22.30
US
204
IL
75
IA
25
MI
62
MN
174
. . . Entrepreneurial activity: patents
Per one million population
387
400
386
358
317
248
200
341
US
303
IL
278
IA
215
MI
358
MN
550
341
344
300
WI
187
100
85
■
90
Wisconsin economic summits
00
04
05
06
07
08
Competitive position? Taxes
How Wisconsin Taxes Compare Nationally
Revenues as Pct. of Pers’l Income; FY 08: US Census
Revenue
US
Wis.
Wis. '07
% Inc.
% Inc.
11.20
11.76
5.0%
13
Up 1
11.75
14
Property
Sales
Tobacco
Ind. Income
Corp. Inc.
Curr. Chgs.
3.45
2.56
0.14
2.56
0.49
3.15
4.26
2.20
0.23
3.20
0.42
3.22
23.5%
-14.1%
64.3%
25.0%
-14.3%
2.2%
8
33
12
12
23
29
2
0
12
2
2
2
4.23
2.24
0.16
3.19
0.46
3.05
10
33
24
14
25
31
Own Rev's
Fed. Rev.
16.37
4.05
16.71
3.56
2.1%
-12.1%
21
38
2
-1
16.53
3.60
23
37
Taxes
+/- US Rank Rk Chg.
Future years ?
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Wisconsin economic summits
% Inc. Rank
The state of state finances
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Wisconsin economic summits
State finances vs. others (NASBO)
■ Surpluses % spdg.
2008
▪ Wisc vs. avg.
1.0% vs. 8.6
▪ States > WI
49
▪ Memo: MN, IA in 2008 ~ 11.0%
■ Spending % inc.
▪ Wisc. (pre-lapse)
▪ 50-state avg.
■ 2010-11 tax increases
▪
▪
▪
▪
■
+5.3%
-6.8%
43 cut
2010
2009
0.7% vs. 4.7
41
2011
+5.2
+3.8%
22 < +2%
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)
Wisconsin economic summits
Outsider’s view of results, ‘09 (GAAP)
98
00
02
04
06
08
10e
0.0
-0.83
$2.71 billion
-1.21
-1.0
-1.27
-1.93
-2.0
-2.24
-2.15
-2.44
-2.50
-3.0
Wis. Fin. Stmts ($b), GAAP
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Wisconsin economic summits
-2.28
Other
states?
-2.46
-2.42
State finances: Current budget
$b
+11.1
%
60
62.19
2007-09
2007-09
2009-11
55.99
40
+1.5%
20
26.27
26.67
< ?! >
0
GPR
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Wisconsin economic summits
All-Funds
State fiscal future: Structural issue
1,232
2,511
11 rev (+ 12)
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Wisconsin economic summits
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
’10
’11
’12
’13
WI-May
3.0%
4.6
4.4
4.4
WI-Aug
2.5%
4.4
4.3
4.1
US-Aug
3.2%
4.7
4.8
4.8
Why this matters.
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Wisconsin economic summits
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
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Wisconsin economic summits
Options overview
■ 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 ?
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Wisconsin economic summits
Autopilot driving budget
1,084.9
1,000
Total
776.4
854.8
735
750
546.6
Family/BC
464
500
395.9
350
Other
313
217
250
179
0
98
99
00
01
02
03
04
05
06
07
Participants (000)
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Wisconsin economic summits
08
09
Medicaid:
’98: 1/13
’08: 1/5
MA deficits,
fed help?
Revenue increases?
■ 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
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Wisconsin economic summits
Low-hanging fruit picked
■ Corporate income e.g. combined reporting, throwback
■ Individual income
Top rate up, cap. gains news
Credits, but small, odd ‘mix’
■ Tobacco (but . . .)
■ Hospital, etc. taxes
■ Sales: ‘iPod’
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Wisconsin economic summits
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
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Wisconsin economic summits
Does legislative make-up matter?
539.5
500
Correct'n s
400
365.2
MA (Fed+St)
300
282.1
School Aids/Crs.
200
200.2
cpi
164.7
153.4
100
0
91
■
*
256.8
Wisconsin economic summits
95
99
03
07
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?
colleges? counties/towns?
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Wisconsin economic summits
e.g., co. human services? tech.
Nothing else
matters with
an elephant in
the room.
Or two
elephants.
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Wisconsin economic summits
Elephant #1: Electorate and elected
■ Public mood and politics:
~70% state gov’t fair/poor job
~60% state priorities: jobs/econ. + tax/spend
no 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?
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Wisconsin economic summits
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 . . .
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Wisconsin economic summits
Elephant #2: The big train wreck
Federal Debt Held by the Public Under CBO’s Long-Term Budget Scenarios (Pct. GDP)
US GDP
CBO
June 09
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*The summits
alternative fiscal scenario deviates from CBO’s baseline projections, beginning in 2010, by incorporating
Wisconsin economic
some changes in policy that are widely expected to occur and that policymakers have regularly made in the past
Questions, quibbles, prayers?
The Wisconsin Taxpayers Alliance
Our eighth decade of teaching and informing
the press and public about how their
government works, taxes, and spends.
Thank you for making our nonpartisan research
and citizen education possible.
www.wistax.org
■
Wisconsin economic summits
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%
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Wisconsin economic summits