A Borrowing Epidemic
Lasee’s Notes
How would you like to have a magical credit card that allowed you to buy just about anything you wanted? Oh, and you never had to worry about paying the bill. Sounds like a fantasy doesn’t it? It is. There is no such thing. We live in a real world, with real costs, and real debts. When we borrow money, we have to pay it back, simple as that.
Unfortunately, many state and local government officials seem to believe they can rack up large sums of debt and not worry about paying the bills.
The Wisconsin Taxpayers Alliance, one of the state’s most respected non-partisan fiscal research groups, released a study (access it here) last week which should make politicians wake up and come back to the real world.
The study found that total debt for state and local governments in Wisconsin had increased by 38% from 2000-2004. That’s over 8% per year. Our state debt now stands at nearly $9 billion ($9,000,000,000). This borrowing epidemic, which is a large contributor to our high tax burden, grew nearly four times as fast as inflation (10.4%).
To put this borrowing into perspective, consider the fact that our personal income grew by 16% during this same time period. In fact, in 2000 to 2002 our total state debt increased by roughly 14% per year, nearly surpassing our income growth for the entire period. As our incomes increased gradually, government debt blew up.
This enormous debt has more serious consequences.
After reviewing our financial situation, three national bond rating agencies (Moody’s, Standard & Poor’s, and Fitch) consistently ranked only two to four states lower than us (California, South Dakota, Louisiana, and Idaho). We’re 46th of 50. That puts our bond rating among the worst in the nation and dead last in the Midwest.
Why should you be concerned?
A state’s bond rating is similar to a person’s credit score. Both measure risk. That is, how likely you are to pay back the money you borrow. If you have a poor credit score and get a loan, it will be at a higher interest rate than a person with a better credit score. The higher the interest rate climbs on our government loans, the more we all pay. That’s a serious problem.
The other problem is that we have to make payments on our existing debt. Because tax collections have remained nearly the same and our debt has increased substantially, we are in a situation where we have to borrow more to cover these obligations. As the debt service climbs it will crowd out other options for paying the bills. That is of course unless we want to raise taxes even higher.
All of this increased borrowing and spending is leading us down the road to becoming a ‘Wississippi’ state – a state with only middle class and poor, where demand for services outstrips the ability of the citizens to pay for those services. In other words, our high tax burden and increased government debt are chasing out higher-income people. We are moving closer to the point where we no longer have the tax base or borrowing power to support the services we’ve enacted.
Someone has to pay for it all. With wealthy people leaving the state in high numbers, that responsibility shifts even more to the middle class. No budgeting gimmicks or accounting tricks will get around that fact.
-------------------------------------------------------------------------------------
Lasee’s Notes is a weekly column by Representative Frank Lasee, 2nd Assembly District, covering events in the Legislature and statewide.
How would you like to have a magical credit card that allowed you to buy just about anything you wanted? Oh, and you never had to worry about paying the bill. Sounds like a fantasy doesn’t it? It is. There is no such thing. We live in a real world, with real costs, and real debts. When we borrow money, we have to pay it back, simple as that.
Unfortunately, many state and local government officials seem to believe they can rack up large sums of debt and not worry about paying the bills.
The Wisconsin Taxpayers Alliance, one of the state’s most respected non-partisan fiscal research groups, released a study (access it here) last week which should make politicians wake up and come back to the real world.
The study found that total debt for state and local governments in Wisconsin had increased by 38% from 2000-2004. That’s over 8% per year. Our state debt now stands at nearly $9 billion ($9,000,000,000). This borrowing epidemic, which is a large contributor to our high tax burden, grew nearly four times as fast as inflation (10.4%).
To put this borrowing into perspective, consider the fact that our personal income grew by 16% during this same time period. In fact, in 2000 to 2002 our total state debt increased by roughly 14% per year, nearly surpassing our income growth for the entire period. As our incomes increased gradually, government debt blew up.
This enormous debt has more serious consequences.
After reviewing our financial situation, three national bond rating agencies (Moody’s, Standard & Poor’s, and Fitch) consistently ranked only two to four states lower than us (California, South Dakota, Louisiana, and Idaho). We’re 46th of 50. That puts our bond rating among the worst in the nation and dead last in the Midwest.
Why should you be concerned?
A state’s bond rating is similar to a person’s credit score. Both measure risk. That is, how likely you are to pay back the money you borrow. If you have a poor credit score and get a loan, it will be at a higher interest rate than a person with a better credit score. The higher the interest rate climbs on our government loans, the more we all pay. That’s a serious problem.
The other problem is that we have to make payments on our existing debt. Because tax collections have remained nearly the same and our debt has increased substantially, we are in a situation where we have to borrow more to cover these obligations. As the debt service climbs it will crowd out other options for paying the bills. That is of course unless we want to raise taxes even higher.
All of this increased borrowing and spending is leading us down the road to becoming a ‘Wississippi’ state – a state with only middle class and poor, where demand for services outstrips the ability of the citizens to pay for those services. In other words, our high tax burden and increased government debt are chasing out higher-income people. We are moving closer to the point where we no longer have the tax base or borrowing power to support the services we’ve enacted.
Someone has to pay for it all. With wealthy people leaving the state in high numbers, that responsibility shifts even more to the middle class. No budgeting gimmicks or accounting tricks will get around that fact.
-------------------------------------------------------------------------------------
Lasee’s Notes is a weekly column by Representative Frank Lasee, 2nd Assembly District, covering events in the Legislature and statewide.
posted by John Q Cheesehead | 11:33 AM
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