As the banking industry collectively holds its breath for what everyone hopes will be the last 36 hours before the nation has a reliable election outcome, WBA takes one last comprehensive look at the 2020 Elections and the impact on policy. This is one year where the rhetoric matches the hype, but regardless of who is in leadership on the state and local level, bankers could have reason to be optimistic.
Many (most) banking strategists are predicting higher growth under a “Blue Wave” scenario with GDP growth as high as 4.5% (compared to 3.X under GOP control) due to the potential for another round of fiscal stimulus focusing on infrastructure, state and local funding, and transfer payments direct to individuals. However, should the U.S. Senate remain in the hands of the Republicans, the Administration and Congress will have to come to an agreement on spending and other reforms, and predictable outcomes could prove a bit more elusive. The reliance on Keynesian economic policy continues, and the Federal deficit is set to expand between $4-6 trillion regardless of which party has the greater influence over Congress.
Monetary policy, consumer spending, Congressional action, and the regulatory environment will likely be a mixed bag for the banking industry, but more than a few strategists believe that the net result will be positive on the bottom line the banking industry to the potential for better margin spread and stable loan valuation. Locally, Wisconsin’s banks must rely upon on CRE, agriculture, tourism and hospitality, and manufacturing, and will be watching capital allocations carefully.
Key Federal Issues
- Federal fiscal stimulus
- Tax policy
- Banking regulation
- Technology/data (antitrust)
- Data privacy/cyber-security
- Housing (GSEs)
- Diversity & Inclusion/Social justice
- Cannabis banking (if “Blue Wave)
State Policy Impacts
State policy next year will be shaped by the potential federal stimulus, the COVID economy’s impact on the state budget, and legislative leadership. Despite COVID-19’s severe economic impact, state corporate tax collections remained strong in the most recent fiscal year. In fact, due to its careful fiscal management, the state was able to increase its 2020 contribution into the rainy day fund bringing its total up to about $760 million. The Wisconsin Fiscal Bureau estimates that state revenues will drop by approximately $1 billion next year, so between the rainy day fund and budget cuts, Wisconsin should weather the storm much better than anticipated.
This is also at least partially due to the reliance on the Wisconsin Department of Revenue out-of-state audit revenue. Another major revenue influence was the CARES Act, included the creation of the Corvona Virus Relief Fund (CRF) to distribute money directly to state, local, tribal, and territorial governments. Each state received a payment from the CRF according to its share of the total US population, and was guaranteed a minimum payment of $1.25 billion. As of Oct. 22, Wisconsin has spent $412 million on economic support, $1.09 billion on Healthcare and Related costs, and $368 million on Local Government and Education support, for a total of $1.87 billion. The state received $2.0 billion in April with Milwaukee, Milwaukee County, and Dane County eligible to receive direct payments of $260 million, for a total of $2.26 billion.
Looking forward, the 2021-23 state budget development process continues as Wisconsin state agencies submitted their 2021-23 state budget requests to the governor and Department of Administration (DOA) in September. Governor Evers directed agencies to assume zero budget growth, with exceptions for K-12 school aids and cost-to-continue programs including Department of Health Services institutions and the state Medical Assistance program. Most agencies, such as the Department of Financial Institutions, followed the governor’s instructions.
Key State Issues for 2021-2023
- State budget deficit/tax collections
- Unemployment payments & Agency reforms
- Diversity & Inclusion/Social Justice
- Data Privacy/Cyber Security
- Environmental Issues