Tuesday, October 15, 2013

The Windfall Principle

I'm not entirely sold on Governor Scott Walker's plan to return 100-million dollars in excess state revenues.  I can see why the Governor wants to take this course of action.  The surplus serves as proof--yet again--that when you cut income taxes, you actually end up collecting more in taxes--in this case, higher than expected sales and corporate tax revenues.  Returning a cool hundred mill gives the Governor the ability to give all of those Democrats who fled to Illinois a big middle finger in the face and an "I told you so!"

But I consider this budget surplus to be a windfall--and good financial planning doesn't call for you to go out and get rid of that money the quickest way you can.  Under the good old Dave Ramsey financial planning system, you apply any extra income to savings and then your priority list of unfunded needs and finally "fun stuff".

The new state budget already called for a record deposit into the Rainy Day Fund--so technically, the savings requirement is already being met down in Madison.  So that brings us to unfunded needs.  Since the Governor has chosen to use school districts as the vehicle for this "refund", might I suggest the schools actually get to keep that $100-million for NON-RECURRING, one-time capital improvement projects that they currently cannot fund under the property tax levy limits.

Please note, that the key to this process is NON-RECURRING expenditures.  To use the windfall money on things that would just increase your expenses in each successive budget (like wage increases, insurance subsidies or hiring more staff) would be asinine--since you can't guarantee that money is coming your way every year.  Although, if we keep cutting the tax rates and being pleasantly surprised by the surplusses--maybe it will become a regular thing.

Every district in the state probably has a boiler that needs to be replaced, or a couple of roofs that are nearing the end of their lifespans.  I could give you the financial projections that show how my $13 expected property tax cut would grow in my investment portfolio to be able to buy me several months of groceries when I'm 75--but a new heater or roof purchased for one of my local schools will last several decades--and to me, just seems like a better use of the money.  Besides, I know most homeowners getting that refund aren't nearly as disciplined as we are in my household--so their 13-bucks would probably go to Starbucks or the corner pub.

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