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You owe $3,500: Debt continues to rise

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Also by Teresa Welsh:

Health costs differ throughout state (December 6, 2007)
Great Dane able to expand beer sales (December 4, 2007)
You owe $3,500: Debt continues to rise (November 29, 2007)
Petri secures state transport funding (November 26, 2007)
Professors know what you REALLY did last summer... (November 20, 2007)

by Teresa Welsh

Thursday, November 29, 2007

Every man, woman and child living in the state of Wisconsin owes $3,500 to pay off state debt, according to a report issued by a non-partisan think tank.

The Wisconsin Policy Research Institute report released this week, written by WPRI fellow Christian Schneider, says state bonding has been increasing over the past 30 years, leaving Wisconsin with a total debt of $19.3 billion in December 2006. The state has moved from ranking 40th in outstanding debt per capita to 10thnationally.

"When the state issues a bond, it gets the money right off the bat, but then it has to pay it back over the course of 20 to 30 years with interest, which ends up costing a lot of money in the long term," Schneider said.

Those in the private sector buy bonds from the state and then cash them in 20 years later for the interest on top of the original amount. Schneider said this can be a good idea if the state gains something concrete from the bond issuance.

"In the past when the state issued bonds, it was essentially just so they could buy buildings or roads, something that the state actually owns," Schneider said. "It makes sense to issue bonds for those purposes because the state actually gains an asset. So, if the state gets in financial trouble, the state can actually sell that asset and get its money back, maybe even at a profit if the property goes up in value."

The problem comes, Schneider said, when the state sells bonds for things other than assets. For example, the state can issue bonds for a transportation project and then use the cash originally intended for that project to fill holes in the general fund budget. This helps pay for operation costs like schools and local government aids.

"Then, in the next budget, the money for the ongoing operations costs isn't there anymore because they issued those one-time bonds, so then they have to go back to fill that hole once again," Schneider said. "And that's when the deficit comes in, because they have created the deficit in the next budget to go find more money."

The Department of Administration, which handles budget affairs for Gov. Jim Doyle, said bonding was used in the 2007-09 Wisconsin State budget passed by the Legislature in October. They authorized approximately $1.8 billion in bonds in this budget.

"By incurring debt, the administration was able to protect public schools, aid local governments and maintain our transportation infrastructure," said Linda Barth, spokesperson for the Department of Administration, in an e-mail. "In addition, it allowed us to free up money to control increases in property taxes."

Barth also said the new budget appropriates $530 million to pay off principal and interest on tax-supported bonds. This totals four percent of state tax revenue.

"The state borrows money and pays back the principal and interest annually, just like a house mortgage," Barth said.

But Schneider sees dollars being borrowed for things that don’t generate assets for the state as a problem.

"When you take out a second mortgage on your house, generally people do that to make an improvement to your house because it increases your home's value and you can hopefully sell it for more money in the long term," Schneider said. "But essentially what the state's been doing is to take out a second mortgage on your house and then using the extra money to throw a pizza party."

Schneider said he doesn't see an immediate solution to this problem.

"There is actually really — aside from the Legislature getting it together, realizing this is a problem and voters actually demanding this of their Legislature — not a whole lot can be done," Schneider said.

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