5.25.2010

Wisconsin's Rainy Day Fund - Going Constitutional

I have to hand it to Wisconsin Assemblyman Mark Gottlieb. When there's a problem facing the state government, he's not afraid to step up to the plate with a proposal for a large-scale solution.  Even knowing it will no doubt spark controversy.  And there's usually some thought behind it.

That's the case with his most recent offering, put forward along with a number of other Republican representatives - a constitutional amendment to mandate a rainy day fund for the state of Wisconsin (not that the state didn't have one before...it just never kept anything meaningful in it).  Gottlieb's plan is about adding some extra legal firepower to enforce discipline in light of experience:

Had Gottlieb's proposal been in effect between the last two economic downturns — from 2003 to 2007 — there would have been $723.4 million in the rainy day fund, compared to the $122 million that was actually there. Because the fund was so low, Gottlieb told The Sheboygan Press editorial board, "We had to slash funding for schools and raise taxes to cover budget shortfalls."

The overall thesis is sound: save during the good times to keep from running off the rails in the hard times.  And set that scheme of fiscal responsibility behind several hurdles - beyond the whims of any given legislature or governor, unless a supermajority of the legislature sees fit.  Limit spending indirectly in the process.  Phil Montgomery gives a succinct overview of the mechanics of the amendment. Here's what the numbers would look like in the present context:

If the amendment were in effect for the fiscal year 2009-10, General Fund spending would be limited to $13.65 billion, based on 6.5 percent of the $210 billion in statewide personal income. The current 2009-10 budget has net General Fund appropriations of $12.9 billion, with a $65 million statutory balance. Net appropriations for 2010-11 has net General Fund appropriations of $18.8 billion, with a statutory balance of $65 million.

Ratification of the measure would certainly have the potential side effect of limiting spending, which is good. 

With any proposed constitutional amendment, though, we have to ask at the outset whether a constitutional amendment is truly the right tool to employ to accomplish the desired task.  It's a big hammer to bring out, so to speak - so is the nature of the problem faced such that it requires resort to the state constitution itself?



Gottlieb makes a good case for going beyond mere legislation, one that lines up with what any member of the electorate probably realizes by now:

The amendment also will help control state spending. When tax revenues exceed projections, lawmakers are always tempted to spend those taxes on new or enhanced government programs. The Wisconsin First Amendment eliminates that temptation by placing taxes collected above a fixed amount off-limits for spending.

Recent history in Wisconsin shows this age-old observation about politicians to be true - and even if there aren't excess tax revenues, when segregated funds aren't fully walled off, they will be still raided.  Gottlieb's provision recognizes the fallibility of man, and politicians in particular.  As Steve P noted:

"Some opponents of Gottlieb’s proposal...note Republicans’ poor fiscal record when the GOP controlled the Legislature. They are correct, of course. That is the point."

There remains a tension between the benefits of certainty that the amendment would bring...and the inflexibility it would impose on the legislature via the constitution itself.  Still, I think the ability of the legislature to use the rainy day funds in an emergency or in a recession, as well as the ability of 2/3 of the legislature to modify the 6.5% threshold itself, assuages most of my concerns about the amendment being a straitjacket.  In fact, there's quite a bit of discretion, for a constitutional amendment.  But, importantly, the amendment would change the starting point when it came to the state government acting in a fiscally responsible manner rather than merely talking about do so.  The threshold with respect to income could evolve, but the notion that a limit for the purposes of a rainy day fund was the constitutional touchstone would remain constant.

While the provision for excess revenues in a given year going to a property tax rebate would help Wisconsinites, it's more of a local concern, from what I know, and it's the one provision in the proposal that makes this effort look a bit like a campaign move rather than a straight up attempt at a solution for the state government's fiscal crisis and a shot at future solvency.  But the excess-based rebate may rarely ever be used - if the rainy day fund is never fully brimming.  And it does at least invoke the same mechanism employed elsewhere in the state constitution for using lottery proceeds to offset property taxes.

The Gottlieb plan is worth pursuing.  Even if it is on this higher constitutional plane.  It does what responsible legislators don't seem to have the political will to do - shows some restraint - when recent history shows fiscal restraint is necessary.