Barrett says Walker used a "credit card" approach to balance state budget, pushing borrowing costs into the future

The recall effort against Gov. Scott Walker was launched over how he eliminated a $3.6 billion budget shortfall -- in part by requiring greater health insurance and pension contributions from most public employees, and curtailing collective bargaining.

Now, in the days before the June 5, 2012 election, Democratic challenger Tom Barrett has focused on one of Walker’s budget-balancing techniques.

In the May 25, 2012 debate, Barrett claimed Walker had "used the credit card" to create a budget that the Walker administration says now shows a small surplus.

"You know how that budget surplus came about, if it is in fact there?" Barrett asked. "Because he used the credit card. He used the credit card, and pushed over $500 million in debt onto our children and our grandchildren."

Barrett went on to say state taxpayers "are going to have to pay more than $150 million in interest" because of the move.

Barrett was talking about a debt restructuring Walker and Republican legislators approved in 2011 for the 2011-13 budget.

But the immediate context of Barrett’s remarks was Walker’s announcement on May 10, 2012, that the short-term interest savings from that debt restructuring were higher than expected, helping him turn a small mid-budget deficit into a small projected surplus.

Most of the additional savings was from pushing off the debt repayment into the future; about 15 percent was from getting a lower interest rate.

Walker’s Department of Administration said it would likely save an additional $78 million in the two years, and that helped knock down the projected deficit.

As backup for the claim, Barrett’s campaign pointed to a memo prepared by the Legislative Fiscal Bureau, the non-partisan state agency that keeps track of state finances. In the May 18 memo to Sen. Kathleen Vinehout (D-Alma) Fiscal Bureau analyst Al Runde wrote:

"Therefore, in total, since May 2011, the state has issued additional debt to restructure, or make the principal payments on, approximately $558.3 million in GPR (general purpose revenue) supported principal that would have otherwise been paid off in 2010-11 and 2011-12.

"As a result, that principal will now remain outstanding for a longer period of time and thus an estimated $156.2 million in additional interest costs could be incurred by the state."

Bob Lang, director of the Fiscal Bureau, said the payments would stretch out in the range of 20 years -- which goes to the "children and grandchildren" part of Barrett’s claim.

We asked the Walker campaign to respond to Barrett’s claim about borrowing. They sent a memo that made more than a dozen points -- mostly attacking Barrett -- but did not address the debt restructuring. Campaign spokesman Ciara Matthews referred more detailed questions to the governor’s state spokesman, Cullen Werwie.

Werwie said the administration decided the borrowing was better than other alternatives to balance the budget, including raising taxes or further spending cuts or "some gimmick that would have delayed payments for Medicaid or school aids."

He added: "With  the restructuring, we were able to finish FY11 in the black (with a slight surplus)" and repay $58.7 million in payments to the  Minnesota-Wisconsin reciprocity bill and $234 million owed to the Patients Compensation Fund.

Our rating

Barrett says Walker borrowed $500 million to help balance the state budget at a cost of $150 million in interest over 20 years. Those numbers are slightly lower than the Fiscal Bureau estimates, but, overall, on target.

But his calling it a "credit card" approach implies that this was an irresponsible action. No one’s claiming that -- it’s something the state did under Gov. Jim Doyle, and not unlike what many homeowners do when they refinance mortgages to better meet their budgets.

Indeed, more favorable borrowing terms saved $78 million and helped Walker claim his budget is running a surplus rather than a deficit.

We rate Barrett’s claim Mostly True.

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Derrick Van Orden

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