The Finance Blogger

We decided to write about this subject on our blog. Since it is likely to impact all of us sooner or later. Many of the states are in a severe budget crisis, including the state of Wisconsin.  Wisconsin Balancing Their Budget hit the news recently. Now we are certainly not experts in this field. However the governor of Wisconsin is telling us he has a significant shortfall between the money coming in and the money going out. Then it is time to sit up and listen. There have been many posts recently talking about other states as well that have the same problem. Especially California who it has been said is broke.

Wisconsin Balancing Their Budget – What are the Solutions

The solutions are pretty simple, although very difficult to implement as seen by the current news items covering Wisconsin. What are the solutions?

• Borrow more money
• Cut expenses
• Increase taxes
• Do all of the above!

Only the US government can print money, the states are not allowed to print money of any kind, so their options are more limited than the US government.

The solutions above are no different than they would be for your personal situation if you were faced with not enough money to pay your bills. It has to come from somewhere. Let’s take a look at each and see what the pitfalls are.

Borrow More Money

The state is no different than you or I. If you borrow money, you have to pay it back sometime and you must pay interest on the money your borrow. Borrowing money just increases your problem and really over the long term can make the situation much worse. At some point the state will not be able to borrow any more since lenders may consider them a bad risk. Same as you or I trying to borrow money from a bank. If you cannot show that you will be able to repay the loan, they will stop lending to you.

Cut Expenses

Right now, Wisconsin is in the news because this is exactly what they are trying to do. Unfortunately the unions are viewing this as an attack on them along with their members, because they will have to give up some of the gains they have received in past years. Roll backs in wage increases, benefits removed etc are all on the table. Obviously they are upset, but then the people in the private sector do not have a lot of sympathy. This is exactly what they went through in the past two years with lost jobs and salary cuts.

Wage decreases, layoffs  and new hire reductions are probably on the way for many state employees in the state of Wisconsin!

Increase Taxes

Taxes are going to go up! Not just state taxes, but every area were the state collects money from residents. Traffic tickets and fines, tourism taxes, income taxes, property taxes, downloading to municipalities, entry fees to state parks and on and on.

We have seen this in other countries, notably Canada, and it will come to this in the state of Wisconsin as well. The state simply must generate more funds to use to pay its bills.

The Reality

The reality is that the State of Wisconsin and likely most if not all of the other states will have to do the same thing. California recently has already doubled traffic ticket fines and there is a lot more to come.

The big question is whether they can cut expenses enough, raise taxes and borrow enough money to see them threw this current crisis? It does not help when government employees are demonstrating, however if these steps are not taken, they are going to lose their jobs in a big way, because the state will have no alternative, but to lay them off and then services to the general population are going to suffer big time.

We are going to write more about this subject, however if you have comments about this subject, feel free to leave your comments. Please keep them constructive and too the point.

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