Wisconsin to Skip Debt Payments to Make Up for Walker’s Tax Cuts
(Bloomberg) -- Wisconsin Governor Scott Walker, facing a $283 million deficit that needs to be closed by the end of June, will skip more than $100 million in debt payments to balance the books thrown into disarray by his tax cuts.
The move comes as Walker, 47, mounts a 2016 bid for the Republican presidential nomination, and while his state is under stress from a projected shortfall that could exceed $2 billion in the two-year budget beginning in July.
Delaying the $108 million principal payment due in May on short-term debt would free funds. The move doesn’t require legislative approval, the nonpartisan Legislative Fiscal Bureau said in a Feb. 13 memorandum. The terms of the debt sale allow Wisconsin to defer the payment in any given year, a procedure known as a restructuring, without defaulting.
“They need some cash.”
“They need some cash,” said Todd Berry, president of the Wisconsin Taxpayers Alliance, a nonpartisan research group that examines taxes and government spending. “This is kicking the can down the road.”
A spokesman for the Wisconsin Department of Administration said the state is taking advantage of “favorable short-term interest rates” for the restructuring.
“With these types of notes, the maturity schedule and amortization is determined solely by the state, unlike a traditional bond,” said Cullen Werwie.
Werwie also noted in an email that Walker’s predecessor, Democratic Governor Jim Doyle, “utilized similar financial
Walker’s plan would increase debt-service bills by $545,000 in the next budget year, which starts July 1, and by $18.7 million in the one after that.
Berry said Walker has little room to maneuver.
“That’s a lot of money to try to find in four-to-five months, if you do it through cuts,” Berry said.
Since taking office in 2011, Walker has steered more than $2 billion in tax cuts through the Republican-controlled legislature. The state reported a $759 million surplus on June 30, 2013.
“The state continues to adjust its tax code, offsetting revenue growth,” Fitch Ratings said Feb. 17 in an analysis of the fiscal conditions of states.
Fitch and Standard & Poor’s rate Wisconsin’s long-term general-obligation bonds AA. Moody’s rating is Aa2.
Walker proposed his budget Feb. 3, recommending a $300 million cut in funding for the University of Wisconsin system and the removal of restrictions on the state’s private-school voucher program.
Walker won re-election to a second four-year term in November, bolstering his status among Republicans who applauded his 2011 move to restrict collective bargaining for most public employees. He survived a recall attempt in June 2012 and defeated Democratic businesswoman Mary Burke on Nov. 4.
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