State Agencies Release Budget Requests

State agencies released their 2019-21 budget requests on Monday. These requests help inform the Governor’s development of their budget bill, which will be introduced in January or February of 2019.

Educational Communications Board (ECB)

ECB’s full request can be seen here: https://doa.wi.gov/budget/SBO/2019-21%20225%20ECB%20Budget%20Request.pdf

Media Lab: Most notably, they are requesting  $500,000 of state GPR funding in Fiscal Year 2020 and 2021 to reinstate funding for  Wisconsin-based K-12 educational media production. State funding was eliminated for this programming in the 2015-17 state budget.

“Wisconsin’s students need and deserve equitable access to effective and engaging educational media, particularly in curriculum areas specific to Wisconsin,” writes ECB in their request.

Public Instruction (DPI)

DPI’s full request can be seen here: https://doa.wi.gov/budget/SBO/2019-21%20255%20DPI%20Budget%20Request.pdf

As you have likely read, DPI is requesting a $1.4 billion increase for schools.

State Superintendent Tony Evers writes in a cover letter that DPI’s budget request responds to challenges raised by citizens and school throughout the state by:  “ending the decade-long freeze on special education funding; prioritizing student mental health; restoring and expanding crucial student supports; and reforming our broken school finance system.”

Specifically, DPI proposes:

• A $600 million investment in special education, increasing the reimbursement rate from 25% to 60%, while expanding funding for English learners and rural schools;
• Nearly $64 million more for student mental health funding;
• Funding for full-day 4K, funding for afterschool programs, and initiatives targeted to Wisconsin’s largest urban school districts;
• Reforming the school finance system. DPI says this will guarantee a minimum amount of state general education aid for each student of $3,000.  The plan also includes indexing the revenue limit adjustment to inflation and eliminates the School Level Tax Credit and First Dollar Credit and folds them into the state general equalization aid formula (a full description of the plan can be found on page 13 of the budget request)
• Two-thirds state funding for schools.

Library and educational technology items include:

Personal Electronic Computing Device Grants: DPI continues funding of the one-to-one device program created by the last state budget. Their request provides $9.1 million in each year of the biennium.

School Library Aids (estimate): DPI estimates that school libraries will receive $37 million in aid each year. This is an estimate of the Common School Fund distributions.

Public Library System Aid: DPI requests an additional $2.5 million in funding for public libraries in the first year of the biennium and an additional $4 million in the second year of the biennium. According to DPI, this is being done in part to maintain a one-time funding increase of $1.5 million received by public libraries in the last state budget biennium that is set to expire. DPI writes in its budget request that: “The present level of funding jeopardizes the current status of full participation by all libraries in the state. If public libraries do not participate, access to public library service by non-residents is reduced or eliminated.” The Wisconsin Library Association has said that they would use the additional funds “to address workforce development, technology infrastructure, and promotion of lifelong learning.”

Library Service Contracts: DPI requests increased funding of $133,200 in the first year of the biennium and $168,100 in the second year of the biennium to fully fund the library service contracts. The contracts are currently held by:  the Milwaukee Public Library (MPL), the University of Wisconsin-Madison (UW-Madison), the Wisconsin Talking Book and Braille Library (WTBBL), and the Cooperative Children’s Book Center (CCBC).

BadgerLink and Newsline for the Blind: DPI requests an increase of $345,800 in the second year of the biennium to fund BadgerLink contracts and Newsline for the Blind.

Wisconsin Reading Corps: DPI requests an increase of $700,000 in each year of the biennium for the Wisconsin Reading Corps. The program provides one-on-one literacy tutoring for students. Funding for the program is currently set to expire on June 20,2019. DPI is requesting that the program continue.

Board of Commissioners of Public Lands (BCPL)

BCPL’s full budget request can be read here: https://doa.wi.gov/budget/SBO/2019-21%20507%20BCPL%20Budget%20Request.pdf

BCPL submitted a cost-to-continue budget to fund current agency operations. They say that the BCPL is  currently “managing more trust assets than at any time in agency history.” This includes the Common School Fund.

CSF, BCPL Study Committee Discusses Possible Recommendations

The Legislative Council Study Committee on Investment and Use of the School Trust Funds met again on September 5. You can watch the video of the meeting here. 

They heard from an investment expert from the CommonFund Institute, the State of Wisconsin Investment Board, the Wisconsin Bankers Association, a local government economic development panel, a municipal advisor from Ehlers, Inc. and the University of Wisconsin System. A summary of their testimony can be found below. 

At the end of the meeting, the Committee spent time talking about what types of recommendations they would like to make for legislation. Most Committee members seemed interested in looking at ways to increase the earnings of the Common School Fund. Senator Stroebel (R-Saukville) expressed interest in aligning the Common School Fund with the endowment model and transferring it to SWIB. In terms of the BCPL Trust Fund Loan Program, members expressed interest in adding a requirement to the BCPL Loan Application that municipalities need to talk to the private sector before getting a loan from BCPL. Kim Bannigan, who is a public member on the Committee, raised concerns that the BCPL has been receiving fewer deposits from fines and forfeitures in recent years and asked if there was a way to strengthen reporting around that process.

At the end of the September 5 meeting, the Committee decided they wanted to have a memo prepared by the Legislative Council attorneys outlining their options related to:

•   Fines and forfeitures revenue going into the Common School Fund and what could be done to ensure that BCPL is receiving all the deposits it’s supposed to receive.
  ·        Changes to the BCPL Trust Fund Loan Program.
  ·        Options for facilitating the transfer/investment delegation of funds to SWIB from BCPL (changing state statute to expand SWIB’s investment authority for investing the Common School Fund)
  ·         Changes related to Common School Fund investment strategy.
  ·         Facilitating lending to municipalities by community banks (possibly examining, simplifying state regulations). 

    The Committee’s next scheduled meeting is on October 11 in the State Capitol.

• CommonFund Institute Executive Director Cathleen Rittereiser discussed best practices of endowment investing and the concept of intergenerational equity. The CommonFund Institute primarily serves non-profits. She explained the “endowment model” to the Committee, which she said consists of equity bias (stocks, ownership of assets), liquidity premium (the extra return that an investor receives for providing capital to the market) and diversification (the idea of designing a portfolio with a mix of asset classes). She told the Committee the goal is to earn Alpha, which is defined as the return you earn over market returns. She said you need to promote Alpha because you need to preserve capital and grow it over time, so that you have even more to distribute to your beneficiaries. When Representative Katsma (R-Oostburg) asked her about the Common School Fund’s spend rate, she said it was low compared to colleges and non-profits but that it didn’t mean it wasn’t meeting its needs. Senator Stroebel (R-Saukville) asked her if she felt SWIB and BCPL were following the endowment model of investing, and she said she did not feel like BCPL was following the endowment model and that she would recommend they remove the constraint on fixed income. Legislative Council Attorney Zach Ramirez reminded the Committee after this line of questioning that there are constitutional restraints on how the Common School Fund can be invested. He said that in the endowment model, the trustees can spend from their principal but that the Common School Fund is prohibited from spending from its principal. 

• The State of Wisconsin Investment Board (SWIB) Interim Director Rochelle Klaskin gave the Committee an overview about SWIB’s investments. Representative Vruwink (D-Milton) asked her if SWIB could manage the Common School Fund better than BCPL. She told him that every fund is different and that when SWIB starts investing for a fund, they look at its constraints and goals and then set an investment strategy. She cautioned against comparing SWIB’s Core Fund returns to BCPL’s returns because it is not an apples-to-apples comparison. She also told Representative Vruwink, that SWIB can’t guarantee any return because they “live and die” by the market cycle. When asked if SWIB would be interested in taking over the BCPL Trust Fund Loan Program if they were given the authority to invest the BCPL’s fund, she said that they don’t have the infrastructure to administer the loan program. When asked if SWIB would internally or externally manage BCPL’s funds if they were transferred to them, she said they would likely have them be managed externally.

•   Wisconsin Bankers Association (WBA) lobbyist John Turke testified with one of his members, Jeff Gruetzmacher. Turke said that WBA was one of the groups that requested the study committee. He told the Committee that banks want to make the loans BCPL is making now and that his Association believes that the state should be a “lender of last resort.” He told the Committee that people seeking loans from the state should have to “seek a solution from the private sector first.” He said that many times, the private sector is not even consulted for bids on public projects because people are going straight to BCPL. Gruetzmacher told the committee that “it doesn’t seem right” that BCPL is in direct competition with private industry and private banks. He said that their rates were actually better than BCPL’s. When asked about what local banks are doing to promote their municipal lending programs, Gruetzmacher acknowledged that most of it is through word-of-mouth and that they don't really formally market it. 

• ·         A local government economic development panel that included representatives from the Town of Scott and the City of West Allis testified about the impact of the BCPL Trust Fund Loan program on their communities. Individuals from the Town of Scott said that as a small town they don’t have the staff or support to go to the bonding market. They said that BCPL is an easy application and lending option that banks can’t deliver. Patrick Schloss said that the Trust Fund Loan program is one of the few tools that both small and large communities have to finance projects quickly, efficiently and cost-effectively. He gave an example of West Allis using a BCPL loan to fix a flooded site in their city which then led to a $43 million development that was funded by a private entity. Representative Katsma asked if they ever go to local banks and borrow from them. The officials from Town of Scott said they borrow from banks too, generally for shorter loans. Patrick Schloss said they either use the bond market or BCPL. He also said that banks have lending limits that impact how many projects they fund in a given community. 

•          Phil Cosson, Senior Municipal Advisor/Director, of Ehlers, Inc. Ehlers is an independent municipal advisory firm that works exclusively with municipalities and school districts. He told the Committee they strongly believe in the BCPL and their loan program and that it’s an important tool in Wisconsin. Ehlers is required to look at and present all available options to their clients. He said that in Wisconsin, there are very few options for the issuance of debt compared to other states. He said that they do develop relationships with local banks and, when appropriate, they look at other programs like BCPL and loan programs like the rural development loans and programs run by DNR and DOA. The goal is to make sure the municipality is receiving the best deal possible for taxpayers. They look at cost, risk and the structure of existing debt. He said the BCPL program fills a gap that would be more challenging for a bank or the general market to fill, especially for economic development projects because of its flexibility and ability to re-structure. He said that private activity debt isn’t necessarily a good fit for local banks, but BCPL can accommodate it. He said that small communities often can’t access financing in the bond market and that local banks want to do shorter loan terms that don’t always work for the project that municipality wants to do. He told the Committee that local banks are not shut out of the process and that every local bank in a community is given the opportunity to bid on competitive bond sales. He said they also work with local banks at the discretion and direction of the local government. Representative Katsma asked Cosson if he observed that there were less opportunities for municipalities to borrow money in the recession of 2008. Cosson told him that after the recession access to capital was an issue and it became very difficult to secure financing and that the BCPL loan program provided a real option in those difficult times.
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• ·    Officials from the University of Wisconsin System testified about the Normal School Fund ($495,000 distribution in 2017-18), Agricultural Fund ($10,600 distribution in 2017-18) and University Fund ($7,266 distribution in 2017-18), which are administered by BCPL. These funds benefit the Nelson Institute at UW-Madison, environmental programs at UW-Stevens Point, the Sustainable Management Degree Program at UW-Extension, the UW Merit Scholarships and programs for the benefit of agricultural and the mechanic arts. Senator Taylor (D-Milwaukee) asked why almost all of the funding was going to UW-Stevens Point for the environmental programs. The UW Officials said the programs run by UW-Stevens Point benefit people across the state, including the K-12 Environmental Education Leadership program.  

Study Committee on BCPL, CSF Meeting Today!

The Study Committee on the Investment and Use of the School Trust Funds is meeting today (September 5) starting at 10 a.m. 

They will hear from the CommonFund Institute, the State of Wisconsin Investment Board, the Wisconsin Bankers Association, Local Government Economic Development experts, and the University of Wisconsin System.

You can watch the whole thing live on Wisconsin Eye: http://www.wiseye.org/Live