As Wisconsin’s debt load continues to grow, the tax burden for Wisconsin families and businesses will grow right along with it
Throughout the early part of Wisconsin history, governmental debt was limited primarily to capital-building pro- jects. In 1969, the Wisconsin Constitution was amended to allow the state to issue debt directly. Previously, the state-funded capital expenditures by using “dummy corporations,” which issued bonds on behalf of the state. Road pro- jects were often funded by local governments, which were then reimbursed by the state. The 1969 constitutional amendment allowed state government to take control of its own debt issuance, rather than leaving it up to independent corporations.
Since Wisconsin began issuing debt directly, the level of debt issuance has expanded dramatically — much of it within the last decade. In addition, the purposes for which the state takes on debt have greatly expanded. Whereas once bonding was used exclusively for state “brick and mortar” projects, debt is now used for programs to provide home loans for veterans and poor individuals, to purchase land for conservation, to clean chemical spills, and some- times even to boost school aids and fund local governments.
In 1969, when the constitution was amended to allow the state to issue bonds, Wisconsin had $392.8 million in outstanding debt, issued primarily through building corporations. In December 2006, Wisconsin had $19.3 billion in outstanding debt, or $3,476 for every state resident. By comparison, the total amount of general fund taxes the state is expected to collect in 2007-08 is $12.8 billion. Shortly before the 1969 constitutional amendment passed, Wisconsin ranked 40th in the nation in state debt per capita. By 2003, Wisconsin had risen to 10th in per capita debt outstanding — and state debt has increased substantially since then.
Furthermore, the state has issued debt in excess of taxpayers’ ability to support that debt. Chart 1 illustrates the growth in General Purpose Revenue (GPR)-supported General Obligation (GO) bonds relative to actual GPR. In 1979, outstanding GPR-supported GO bonding equated to 16.1% of state GPR. By 2006, that number had more than doubled, to 33.9%. This tells us that GPR-funded GO bonding has grown substantially in relation to tax revenue.
As the amount and purpose of debt issuance in Wisconsin continues to expand, two things have become clear.
First, state government has utilized debt to purchase things it may not have otherwise been able to afford if it had to use cash financing. Increases in building and land procurement programs indicate the short-term desire to deliver pro- jects to legislative districts, while delaying the cost of these projects for future generations to pay.
Secondly, debt is more often being used as a budgetary tool, rather than a way to buttress the state’s infrastructure. Increasingly, debt has been relied upon to bail the state out of difficult budgetary situations brought on by declining revenues and increasing funding pressures.
This report examines the increased use of debt by state government, and how the growing reliance on bonding can be traced to pressures to find short-term answers to the state’s fiscal problems.