Brian Dake

Local governments across Wisconsin are dealing with increasing debt burdens, according to a new report from the Wisconsin Policy Forum.

The report found that total debt owed by the state’s cities, counties, villages and towns rose by 5.4 percent to $11.04 billion in 2020 — the highest amount on record.

Cities including Milwaukee, Madison and Kenosha hold the most debt, but Wisconsin towns have seen the fastest growth in borrowing since 2015.

The Policy Forum looked at Wisconsin Department of Revenue data from more than 1,920 local governments from 2000 to 2020. According to the report, on December 31, 2000, local governments owed a total of $5.23 billion — or $7.86 billion in 2020 dollars. Twenty years later, those same local governments owed $11.04 billion — a more than 40.5 percent increase after adjusting for inflation.

The report points to several reasons why borrowing has grown over the last two decades, including a need to replace aging infrastructure and upgrade technology across the state. Interest rates have also been extremely low. The report also points to state law that incentivizes taking on more debt.

Levy limits matter for debt because property taxes used to pay for a local government’s operating budget are constrained by the levy limit, but property taxes used to make payments toward debt are outside the levy limit.

Yesterday, the nonpartisan Legislative Audit Bureau (LAB) released a limited-scope review of the We’re All In and Wisconsin Tomorrow grant programs. These programs, which used supplemental federal funding and were intended to assist Wisconsin businesses that experienced economic damages during the public health emergency, were administered by the Department of Revenue (DOR). In February 2022, the Joint Legislative Audit Committee directed LAB to evaluate the State’s administration of supplemental federal funding received in response to the public health emergency.

DOR awarded $595.9 million in We’re All In and Wisconsin Tomorrow program grants to small businesses, restaurants, and lodging establishments.

Written eligibility requirements were included in DOR’s agreements with the Department of Administration and in additional written requirements that DOR developed. DOR indicated it adjusted the eligibility requirements in order to meet the needs of businesses that had experienced economic damages as a result of the public health emergency. However, LAB found that DOR did not modify its agreements with DOA or modify the written eligibility requirements it developed in order to reflect the adjustments it made to the eligibility requirements.

“As a result of the forced lockdowns, all of our small businesses across our state were affected and it became necessary for us to assist them. Overall, DOR did a fine job administering the $595.9 million to them and appreciate that they are taking steps to remedy the errors that occurred,” said Representative John Macco (R-Ledgeview).

DOR did undertake certain program integrity efforts to identify fraudulent grant applications and recover grants awarded inappropriately. In addition, DOR indicated it was determining the extent to which it may have awarded certain grants in error. LAB made recommendations to DOR related to the efforts to identify grants DOR awarded in error, including that DOR report to the Joint Legislative Audit Committee.

“Thanks to the important work of LAB and their review of these grants, DOR is now undertaking necessary efforts to identify inappropriate and fraudulent activity targeting these grants. I believe that this effort is going to be a very important element to not only ensure the proper administration of the We’re All In and Wisconsin Tomorrow Grants, but also to potentially kickstart other state agencies to identify and report fraudulent actively in programs they’ve administered with federal COVID relief funds,” said Senator Robert Cowles (R-Green Bay).

LAB reviewed 172 program grants totaling $4.1 million and found that DOR did not follow its written eligibility requirements when it awarded 45 grants totaling $475,000. Because LAB’s review is not based on a statically valid sample of grants, it is not appropriate to extrapolate the results of the review to all grants that DOR awarded.

Inflation will likely persist into 2024, St. Louis Federal Reserve President James Bullard warned on Wednesday, suggesting interest rates could likely surge even higher as the Fed battles rising prices.

I think we’ll probably have to stay there all during 2023 and into 2024,” Bullard told MarketWatch of high interest rates, estimating they could reach between 5 and 7 percent.

Bullard pointed to low unemployment numbers and indicated the jobs market’s strength would enable the Fed to tackle inflation head on through more rate hikes.

“The fact that the labor market is so strong gives us license to pursue our disinflationary strategy now and try to get the inflation under control now. So we don’t replay the 1970s, where the FOMC at that time took 15 years to get inflation under control,” he said.

Inflation stood at 7.7% as of October, down from a 9.1% high in June. The Federal Reserve rose interest rates by 0.75% earlier this month, for the fourth time this year. Current lending rates range from 3.75% to an even 4%.

There are growing concerns about a nationwide rail strike, now that more rail unions have rejected a proposed contract between the rail carriers and rail unions. Negotiations between the two sides have gone on for several years with some of the main sticking points for unions revolving around quality-of-life issues, such as time off.

Negotiators had reached a tentative agreement and avoided a strike several weeks ago, but were waiting for the unions to vote on that agreement. However, several unions have since rejected the deal. SMART Transportation Division is one of the largest unions, and part of that union voted the tentative agreement down, saying that it did not address some of the significant quality-of-life issues that it believes are fundamental.

Currently, the rail carriers and rail unions have entered into a cooling-off period, which prevents the rail carriers from locking out workers or union members from organizing a strike due to work conditions. However, that changes on December 9th.

In response to the results of some of the unions rejecting the contract agreement, Union Pacific said, “The railroads remain willing to enter into agreements based on the PEB-recommended framework. Should the unions, without ratified agreements, remain unwilling to do so, they are expected to strike, and Congress may need to intervene, just as it has in the past, preventing further disruption to the struggling supply chain.”

Wisconsin Republican legislative leaders said Tuesday they want to tap the state’s projected record-high $6.6 billion budget surplus to make “transformational” and once-a-generation tax law changes.

Senate Majority Leader Devin LeMahieu (R-Oostburg) said he wanted to move toward a flat income tax rate.

“We can make transformational tax changes in Wisconsin,” LeMahieu said. “We definitely need to drive down our top rates.”

Wisconsin’s income tax rates begin at 3.54% and increase to 7.65%. The top rate applies to single filers earning $280,950 and up; married joint filers making more than $374,600; and married people filing separate returns with taxable income of more than $187,300, according to the state Department of Revenue.

Assembly Speaker Robin Vos (R-Rochester) said he wanted to cut taxes “as much as we possibly can” and “it needs to be long term and permanent.” That includes eliminating a property tax, a tax paid by businesses. Evers last session vetoed a bill to eliminate the tax.

Wisconsin’s financial outlook appears even rosier than previously projected, with the state Department of Administration on Monday estimating the state’s general fund balance could surpass $6.5 billion by summer.

Updated projections released by the DOA underscore how increased state revenue over the course of the next two-year state budget is expected to result in a record-high general fund balance of more than $6.57 billion by the end of the current fiscal year on June 30. That balance does not include the state’s more than $1.7 billion budget stabilization fund, a rainy day fund to be used in times of emergency.

The head of the Wisconsin Department of Natural Resources is retiring after four years on the job, Gov. Tony Evers announced Friday.

Preston Cole has served as secretary of the department since Evers took office in 2019. Cole will be retiring on Wednesday, giving Evers an opportunity to choose a new leader of the agency for his second term.

“Preston has been an integral part of my administration since day one, and we are sorry to see him go,” Evers said in a statement.

Evers’ spokesperson, Britt Cudaback, said a replacement would be named as soon as possible.

Prior to leading the department as secretary, Cole served 11 years on the Natural Resources Board, including two years as chair in 2013 and 2014. He began his career with the Missouri Department of Conservation, where he was the first Black forester. He also served as commissioner of the Milwaukee Department of Neighborhood Services and as director of operations for the Milwaukee Department of Public Works.

The U.S. Energy Information Administration (EIA) expects that low inventories of distillate fuels, which are primarily consumed as diesel fuel and heating oil, will lead to high prices through early 2023. According to EIA’s November Short-Term Energy Outlook (STEO), diesel prices will remain higher than $5 per gallon the remainder of the year, and bills for homes that use heating oil will increase by 45% this winter season compared with last winter.

U.S. inventories of distillate fuels finished October at their lowest levels in any October since 1951.

“Inventories are just one part of the supply equation for diesel and other distillates,” said EIA Administrator Joe DeCarolis. “The distillate fuels in storage aren’t the only source of diesel we have to keep trucks and trains moving, but lower-than-average storage levels will contribute to higher costs for diesel and for heating fuels through the winter.”

EIA sees additional uncertainty in the global marketplace for distillates and other fuels as the European Union plans to ban imports of petroleum products from Russia in early 2023.

Housing starts declined by 4.2 percent from September to 1.43 million units, according to Census Bureau data released on Thursday.

The number of new building permits issued in October also fell from the previous month, dropping by 2.4 percent to 1.53 million.

“Both starts and permits fell behind September levels and behind levels from one year ago,” Zillow senior economist Nicole Bachaud wrote in an analysis.

“As the current affordability crisis burns on, builders are feeling demand for new homes slipping further away, depressing confidence in their ability to sell their completed projects at the prices they need,” Bachaud added.

The Federal Reserve’s series of interest rate hikes targeting rising inflation have led to high mortgage rates that are pushing prospective buyers out of the market.

Recent data shows that monthly mortgage payments have more than doubled from pre-pandemic levels reaching $1,840 for a typical single-family home after a 20 percent down payment.

These high rates are also driving home builder sentiment to decade lows, according to data released Wednesday by the National Association of Home Builders.

Americans stepped up their spending at retailers, restaurants, and auto dealers last month, a sign of consumer resilience as the holiday shopping season begins amid painfully high inflation and rising interest rates.

The government said Wednesday that retail sales rose 1.3% in October from September, up from a flat reading in September from August. The increase was led by car sales and higher gas prices. Still, excluding autos and gas, retail spending rose 0.9% last month.

Strong consumer demand could perpetuate inflation, but other trends may work in the other direction. Auto sales jumped 1.3% last month, the retail sales report showed, but that gain, in addition to people replacing cars in Florida, partly reflects a clearing of supply chain problems that have made more auto parts and semiconductor chips available. Auto production has rebounded, leading to greater supply, which can push prices down.

Gas station sales jumped 4.1% last month, though that largely reflected higher prices. Online sales rose 1.2%, and restaurant and bar sales moved up 1.6%.