$281 Million Revenue Shortfall in 2013-14 Will Mean a Big Jump in the Structural Deficit
State lawmakers got bad budget news today, when the Legislative Fiscal Bureau (LFB) released state tax collection figures showing that revenue collections fell $281 million (2.0%) short of projections during the fiscal year that ended on June 30. Rather than growing by 1% as anticipated, state tax collections fell by 1%, and that will cause a substantial jump in the state’s structural deficit.
State lawmakers banked on revenue growth when they wrote the state’s two-year budget and followed up with additional tax cuts. It’s not clear at this point what will result from a substantial revenue shortfall, but one potential outcome is the state could face a new round of damaging budget cuts. What makes the state’s new budget challenge very disappointing is that it could have been easily avoided if lawmakers hadn’t rushed early this year to use every bit of increased revenue projections for another round of tax cuts, without setting funds aside for an adequate budget cushion. Read more
For the past month or so I’ve been scratching my head wondering when we would get an update from the WI Department of Revenue on state tax collections during the fiscal year that ended on June 30th. I’m not the only one who has been anxiously awaiting those numbers; four Democrats in the state Senate sent a letter yesterday to Secretary Huebsch asking when the FY 2013-14 revenue numbers will be released.
“Given the numbers we’ve seen to date, the delay is already fueling concern that they will show a revenue shortfall. How significant that shortfall is could have a wide ranging impact not only on future budgets but the current budget as well.”
I share the concern about the potential for a revenue shortfall. Read more
New Report: How Wisconsin Lawmakers Have Broken with Tradition and Undermined a Legacy of Investment
Four years ago Wisconsin was made a promise. The promise was that the best way to generate economic growth was through significant tax and spending cuts. The tax and spending cuts have occurred, but unfortunately for all of us, the promised job growth has not.
That’s the conclusion of a new Budget Project report released today, called “Breaking with Tradition: How Wisconsin Lawmakers Have Shortchanged a Legacy of Investment in the State’s Future.” The new report reviews the many changes policymakers have made recently in how Wisconsin supports it schools, communities, and workforce.
Lawmakers have made dramatic tax cuts since 2011, totaling $1.9 billion over four years. But the value of the tax cuts was not equitably distributed. Half the value of the major tax cuts packages in 2013 and 2014 went to the top 20% of taxpayers by income, and the remaining 80% shared the other half.
The tax cuts have contributed to deep cuts to public schools and higher education in Wisconsin. Read more
Governor Walker has given state agencies guidance on how to develop their proposals for Wisconsin’s next budget, giving some glimpses into what the state’s 2015-17 budget might bring.
Wisconsin has a two-year budget. The budget process starts in the summer of even numbered years – like now — when the Governor instructs agencies in how to develop budget requests. Agencies submit their requests to the executive branch by September 15, and the Governor takes the requests into consideration when developing his own budget proposal to submit to the Legislature. The Governor is expected to release his budget proposal in the early part of 2015. For more about the Wisconsin state budget cycle, check the Wisconsin Budget Project’s Budget Toolkit.
For the upcoming budget, Governor Walker recently instructed agencies to assume there will be zero growth in General Purpose Revenue (GPR) appropriations in each fiscal year. In other words, he wants agencies to submit budget requests that are not any higher their budgets were two years ago, even though inflation and other factors have pushed costs up. Read more
At least 13 Wisconsin counties may include an advisory referendum on the November ballot asking voters whether Wisconsin should expand BadgerCare and take the federal funding that would cover the full cost of newly eligible childless adults. The proposed ballot measure, which has already been approved in 4 counties and enjoys broad support, has generated debate about whether the Medicaid expansion topic is an appropriate matter for an advisory referendum.
There are many strong arguments in favor of taking the federal funding (see WCCF’s “Top Ten” list); however, some people who argue against including the BadgerCare question on the November ballot contend that it’s not a concern of county government. But even if we assume for the moment that an interest in county residents’ access to affordable health care isn’t reason enough for counties to allow voters to weigh in on the issue, counties also have their own reasons to be very interested in whether the state expands BadgerCare and accepts the federal funds:
- One very important consideration for counties is they bear the financial responsibility (rather than the state) for some community-based Medicaid services.
A bill under consideration in the U.S. House of Representatives could limit Wisconsin’s flexibility in applying sales tax and make it more difficult to invest in schools and communities, a new report from the Center on Budget and Policy Priorities shows.
A committee in the House recently approved a bill that would prohibit all state and local taxation of Internet access. Currently, there is a moratorium on new taxes on Internet access fees, but seven states with pre-existing internet access taxes – including Wisconsin – were grandfathered in. This new proposal would eliminate the exception for Wisconsin and other states, and permanently ban all taxes on Internet access.
For Wisconsin, this restriction would reduce the resources the state uses to invest in public education, a healthy workforce, and a solid transportation network. Wisconsin would lose $127 million in tax revenue in 2015 if prohibited from taxing Internet access – resources that could be used to make Wisconsin a more attractive place to live and do business. Read more
Revenue Collections Continue to Fall, While Medicaid Deficit Takes Large Jump
The state’s fiscal situation has gradually deteriorated in 2014, and new tax collection figures released late Friday afternoon show a continuation of that trend. That fiscal problem is exacerbated by a couple of areas where spending is growing, including a substantial increase announced today in the estimated Medicaid deficit.
Starting on the revenue side of the state’s budget ledger, here are some of the key figures gleaned from the Department of Revenue’s press release:
- General Fund tax collections fell $26 million in May, compared to May 2013, which is a drop of 2.5% (measured on an adjusted basis).
- Over the first 11 months of the current fiscal year, state tax revenue is down by almost $49 million or 0.4%.
- Although sales tax revenue is up by $186 million or 5.2% over the last 11 months, individual income tax collections are down by almost $290 million – a drop of 4.6%.
In recent years, the Wisconsin legislature has passed more than 60 measures that represent unfunded mandates for local governments or restrict the authority of local governments.
Many state lawmakers embrace the idea of local control, saying that they believe governing should take place at the local level when possible. But instead of expanding local control, the Wisconsin legislature has limited the ability of local governments to make decisions in a wide variety of areas.
The Wisconsin legislature added 64 new limitations or unfunded mandates for local governments in the last four years, according to this memo from the Legislative Fiscal Bureau. New limits added by lawmakers include:
- Constraints on the ability of counties, municipalities, technical college districts, and school districts to set property tax levels;
- Restrictions on local ordinances that protect tenants and limit landlord authority;
- A limit on the ability of local governments to impose residency requirements on employees; and
- The repeal of regional transit authorities.
Several significant pieces of Wisconsin budget data were released late last week:
- Our state is facing a structural deficit of $642 million in the next biennium, which means that $642 million of growth in General Purpose Revenue (GPR) will be needed even if there is no net increase in spending levels in the 2015-17 budget.
- State tax collections were 21% lower in April than in the same month of the previous fiscal year. (See our May 23 blog post.)
- Total Wisconsin tax collections over the first 10 months of the current fiscal year are $21 million less than in the comparable portion of 2012-13.
None of these news items is cause for alarm right now, but the convergence of these facts means the state’s fiscal situation merits watching and might prove to be weaker than some state lawmakers have assumed.
Before taking a closer look at some of the cautionary considerations, let’s start by reviewing several positive perspectives on the state’s budget situation:
- The estimated structural deficit for 2015-17 is substantially smaller than the budget challenges the state faced in most of the other budgets since the late 1990s.
Figures released Friday by the Department of Revenue indicate that state tax collections were 21% lower in April than in the same month of 2013 – primarily because of a $332 million drop in individual income tax revenue. Perhaps more importantly, tax collections have been falling for the past several months – to the point that total tax revenue over the first 10 months of the current fiscal year is now a little bit (0.2%) below the total at this point of the previous fiscal year.
Of course, part of the sharp decline in April can be attributed to income tax cuts that took effect at the beginning of tax year 2014, and part is the result of reductions in income tax withholding that took effect on April 1. Those variables and others make it difficult to do the number crunching to assess whether the latest drop in tax collections is cause for alarm – especially on a gorgeous Friday afternoon when I’m anxious to get out of the office and start the holiday weekend. Read more