State Faces Gap of More than $2.4 Billion between Now and June 2017
State officials confirmed today what we have feared for many months – that Wisconsin’s spending needs in the next biennium far exceed the projected revenue, and the state must also close a very substantial budget hole in the current fiscal year. As a result, lawmakers are likely to make cuts that have harmful consequences for Wisconsin children and families and for the investments needed to keep Wisconsin economically competitive.
Despite the assurances of Walker administration officials over the last couple of months that the state is in strong fiscal shape, the figures contained in a report released by the Department of Administration (DOA) today confirm that balancing the state budget in 2015-17 will require very deep spending cuts or significant tax increases. Specifically, the DOA document reveals the following:
- Tax revenue for the current fiscal year is now expected to be $82 million below the amount estimated in May (on top of a $281 million tax shortfall in the first half of the biennium), and net appropriations are estimated to be $43 million less.
An economic forecast issued Monday by the Department of Revenue (DOR) provides more evidence that Wisconsin will face substantial budget challenges in the current fiscal year and the next biennium. According to that document, which is the fall 2014 Wisconsin Economic Outlook, economic growth will far well short of what DOR assumed in its last report, which was issued in January. (These used to be known as the quarterly economic reports, but for some reason are now issued irregularly and just once or twice a year.)
The January economic report was issued in conjunction with increased state revenue projections, which helped persuade state lawmakers to enact substantial tax cuts. But over the last 10 months the estimates of Wisconsin’s economy, i.e. the state’s “gross domestic product” (GDP), have changed as follows:
- The anticipated Wisconsin GDP in 2014 is now $152 billion less (-0.9%) than assumed in January.
- The estimate for 2015 is $210 billion lower than previously anticipated (-1.1%).
Spending on corrections has increased dramatically in Wisconsin in recent decades, reducing the resources available for quality schools, safe communities, and health care.
Wisconsin state spending on corrections rose by 308% between 1986 and 2013, when dollar amounts are adjusted for inflation. Only eight states had larger increases in prison costs, measured as a percentage increase. Nationally, state corrections spending averaged an increase of 141% over this period, less than half of Wisconsin’s increase. Figures are from a new report released by the Center on Budget and Policy Priorities.
Wisconsin’s increase in spending on corrections has outpaced the increase in all our neighboring states. Corrections spending in Wisconsin increased twice as fast as spending in Minnesota since the mid-1980s, and nearly five times as fast as in Illinois.
This significant increase in corrections spending comes with very large opportunity costs. As corrections spending has increased, it takes up an increasingly large share of the state’s public resources. Read more
An efficient transportation network can’t exist entirely of one-way streets. It needs to be adaptable, with multiple modes of transportation and some areas where traffic flows in different directions. Likewise, the financing for a good transportation network needs flexibility, and it shouldn’t invariably be restricted to one-way flows of revenue.
Next week Wisconsin voters will cast ballots on a proposed constitutional amendment that we think would be too restrictive. Although it would allow state lawmakers to continue to make transfers between many state funds, such as supplementing the Transportation Fund with money from the state’s General Fund, it would prohibit ever moving Transportation Fund revenue in the opposite direction. That would create a double standard for state revenue transfers. It would be a mistake to lock an inflexible policy for state budgeting into the Wisconsin Constitution, as this editorial explains.
Some who favor a constitutional amendment point to past transfers that reduced resources for transportation programs. Read more
The Department of Administration (DOA) announced last week that the state finished the 2013-14 fiscal year with a budget balance of almost $517 million, and many state lawmakers were quick to congratulate themselves for having a budget “surplus.” I don’t fault them for that; I think I would have done the same thing. However, the fleeting existence of a budget balance doesn’t support the argument some lawmakers have made that Wisconsin has turned a corner with respect to careful budget stewardship and long-term planning.
There are a number of reasons why I think it’s ironic that some lawmakers have been patting themselves on the back for getting halfway through the biennium with a relatively large budget balance. Consider the following points:
The “surplus” will be very short-lived – Because of the latest round of tax cuts, net appropriations for the current fiscal year exceed the budgeted revenue level by $569 million, so the state is very rapidly drawing down its budget reserves. Read more
A close look at Wisconsin’s annual fiscal report released last week reveals that state officials delayed a $25.75* million transfer, which made the budget balance larger than it otherwise would have been at the end of fiscal year 2013-14. However, that’s a cosmetic and deceptive improvement in the budget balance, since the payment will still be made during the current biennium. And because the Department of Administration (DOA) report buries mention of the delay in a footnote, that document presents a somewhat misleading picture of the difficulty of avoiding a budget shortfall in the current fiscal year. [*That figure is a correction to the original post, in which I incorrectly wrote that the delayed amount was $27.5 million.]
According to the DOA’s fiscal report released on Oct. 15, the General Fund balance at the end of the last fiscal year was about $517 million, which was $207.5 million lower than what state lawmakers were anticipating when they passed a tax cut bill early this year. Read more
Governor Walker floated the idea this week of replacing the current gas tax with a sales tax on motor fuel. It’s an interesting idea, but I don’t think it would be good public policy because it would replace a stable revenue stream with a tax source that is far less predictable. (You can read more about the idea in this Journal Sentinel article.)
Although we don’t have details of what the plan would look like, the Governor said it would be revenue neutral – at least at first. But clearly the intent is that the sales tax approach would generate more revenue over time, as gas prices increase, and I think that’s a reasonable assumption to make. However, fluctuations in gas prices mean that in any given year this source of revenue could fall well short of the anticipated level.
From a political perspective the chief virtue of the plan, perhaps the sole virtue, is that it offers a way of potentially raising more revenue for transportation projects without periodically asking elected lawmakers to vote on gas tax increases. Read more
TANF Funding Squeeze Creates a Substantial Budget Challenge
The Department of Children and Families (DCF) budget proposes a very large cut in the portion of funding for the Earned Income Tax Credit that comes from the federal welfare reform block grant, which is known as Temporary Assistance for Needy Families (TANF). Specifically, the department’s 2015-17 budget proposes cutting $55.8 million from the TANF funding that gets transferred to the Department of Revenue, which would mean that state General Purpose Revenue (GPR) has to fill the very substantial gap.
Assuming the Walker Administration isn’t planning to cut the EITC, I applaud DCF for wanting to use state funds rather than TANF funds to finance that credit for low-income working families. Unfortunately, the Department of Revenue (DOR) budget proposal doesn’t currently include an increased GPR appropriation for the EITC. Taking both agency proposals together, we have a $55.8 million hole that needs to be filled by state policymakers, and that problem is on top of the other structural budget challenges that have gotten more media attention. Read more
Without intending to do so, the Department of Health Services (DHS) budget request has substantially strengthened the arguments for expanding BadgerCare and taking federal funding available for that purpose, which would erase much of the state’s currently projected Medicaid funding shortfall. There are many compelling reasons to accept the federal funding, and the DHS budget request unveiled last week adds to that list.
The following are four aspects of the budget request that bolster the arguments for expanding BadgerCare eligibility for adults up to 138% of the federal poverty level (FPL). Although the first point noted below is reason enough to take the federal funding, a closer reading of the DHS budget request reveals other reasons why the strong arguments for expanding BadgerCare are now even stronger.
1) The $760 million in additional state revenue needed simply for a cost-to-continue budget – The DHS budget request seeks an increase of $760 million in state General Purpose Revenue (GPR) simply to maintain current Medicaid and BadgerCare benefits. Read more
Most state agencies have submitted their budget requests for Wisconsin’s upcoming 2015-17 budget. These requests are worth taking a look at because they can give some insight into Governor Walker’s priorities for the next budget. The requests can be found here, on the Department of Administration’s website.
Back in July, Governor Walker told state agencies that their 2015-17 budget requests should assume that there will be zero growth in General Purpose Revenue (GPR) appropriations. (He did carve out a few exceptions to that rule.) But nearly all the major agencies that have submitted budget proposals so far have requested at least modest increases in funding. The growing tab for these requests helps illustrate the significant challenge of balancing a budget at a time when the state is expected to need almost $1.8 billion of revenue growth just to provide flat funding.
One agency, the Department of Health Services, has indicated that it will require a big boost in General Fund spending to pay for health care for people with low incomes: $760 million over two years. Read more