Assembly Rejects Democrats’ Alternative Plan for the Projected Surplus

Tuesday, February 11, 2014 at 9:02 PM by

Rejected Plan Included Larger Tax Cuts for Most People and Smaller Structural Deficit 

The Assembly approved the Governor’s proposals for the projected state surplus today, without any substantial changes, and rejected an alternative plan offered by Democrats.  That plan would have reduced the structural deficit, while also providing larger tax cuts to most Wisconsinites, and more funding for technical school training and K-12 eduction.

The plan offered by Assembly Democrats would have replaced the property tax cuts proposed by the governor with a $500 million increase in a current property tax relief program known as the First Dollar Credit.  That credit provides the same amount of property tax relief to the owner of a small home as the owner of a very expensive home or commercial property in the same school district. 

The major elements of the Democrats’ proposals are the following:

  • Decreasing property taxes by an average of $231 in 2014(15), or $100 more than the Governor’s plan.
  • Removing the proposed changes in the Alternative Minimum Tax that will benefit a relatively small number of wealthy people. 
  • Eliminating the tax withholding changes (which lowers the cost of the bill by $322.6 million).
  • Providing a one-time infusion of $100 million for training in the Technical College System.  
  • Increasing the General Fund balance at the end of the biennium by $511 million and decreasing the structural deficit in 2015-17 to $465 million, rather than increasing it to $800 million.
  • Increasing K-12 funding by $36.5 million (by increasing SAGE funding $10 million, providing $2.3 million for high cost special ed. funding, and adding $23.3 million for “sparsity aid” to rural districts).
  • Increasing the transfer to the Rainy Day Fund by $117 million – which provides twice the amount proposed by the Governor. 

On balance, I think the alternative offered by Democrats is more fiscally responsible, given that it significantly reduces the structural deficit and increases the Rainy Day Fund.  Even though the increased funding for the First Dollar Credit doesn’t come until the beginning of the next biennium (July 2015), the structural deficit is reduced substantially.  And in contrast to the Governor’s plan, the balance wouldn’t be drawn down to the absolute minimum at the end of the current biennium; instead it would provide an ample margin for error – in the event that revenue falls short of projections or DHS can’t find a way to eliminate the estimated $93 million Medicaid deficit.

One disappointing feature of the Dems’ plan is that it doesn’t increase the Homestead tax credit, which would provide more targeted relief for low-income households and would be a far more effective way to help renters get some of the property tax relief.   (That isn’t in the Governor’s plan either.) 

Another surprising element of the alternative plan is the proposed one-time, $100 million increase in technical college funding.  Although I haven’t heard an explanation of the logic for that approach (other than reducing the structural deficit), I think it would be more effective and more responsible to provide a smaller, sustained increase.  In any event, all of my assessment is rather academic – considering that the GOP majority soundly rejected the Democrats’ plan. 

The bill now goes to the Senate, where some changes are expected.  However, it increasingly sounds to me like those might only be cosmetic changes, such as eliminating the Governor’s $117 million increase to the Rainy Day fund and putting that money into the General Fund balance.  Ironically, even though that would remove the most fiscally responsible part of the Governor’s plan, it would technically have the effect of yielding a small reduction in the current structural deficit, rather than the $100 million increase in red ink in the Governor’s plan.  That says more about the inherent shortcomings in our state’s method of calculating the structural deficit than it tells us about the merits of transfers to the Rainy Day Fund.

It is still unclear when the Senate will take up the bill and whether Senate leaders will bother to send it to a standing committee or even to the Joint Finance Committee.    

Jon Peacock

Categories: 2013-15 biennial budget, Blog, income taxes, property tax, rainy day fund, taxes | Comments Off on Assembly Rejects Democrats’ Alternative Plan for the Projected Surplus

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