The Ironic Rise and Fall of a Budget “Surplus”

Friday, October 24, 2014 at 4:56 PM by

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

Delay in Revenue Transfer Makes State Budget Balance Appear Larger

Tuesday, October 21, 2014 at 7:36 AM by

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

Replacing a Stable Revenue Stream with a Far Less Predictable Source

Tuesday, October 14, 2014 at 7:20 PM by

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

Proposed EITC Funding Shift Reveals another Budget Hole

Friday, October 10, 2014 at 4:50 PM by

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

DHS Budget Bolsters Case for BadgerCare Expansion

Monday, September 22, 2014 at 5:05 PM by

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

Agency Requests Underscore Wisconsin’s Budget Challenges

Tuesday, September 16, 2014 at 2:48 PM by

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

Categories: 2015-17 binennial budget, Blog, STATE BUDGET | Comments Off

New LFB Figures Are a Sobering Reminder of the Need for More Prudent Budgets

Monday, September 8, 2014 at 6:05 PM by

Structural Deficit Calculation Jumps to Nearly $1.8 Billion

It’s remarkable how quickly the state’s fiscal picture can turn around, even during a period when the national economy is on the mend.  During the campaign season two years ago, GOP incumbents were making a big deal of the fact that they had eliminated the state’s structural deficit.  Today we learned from the Legislative Fiscal Bureau (LFB) that the structural deficit has returned with a vengeance; the new figure of $1.766 billion is the third largest structural deficit estimated by the LFB since 1997 (for the 10 biennial budgets from 1997-99 through 2015-17).  

Although that turnaround in the state fiscal picture is surprising to many people, it shouldn’t be.  Wisconsin lawmakers have a long history of banking on surpluses that are estimated during the first half of a biennium (especially in election years) and promising tax cuts and/or spending levels that aren’t sustainable and that lead to big deficits.  Read more

Reports of Budget Hole May Understate Size of Problem

Friday, September 5, 2014 at 7:32 AM by

Budget Repair Bill May be Needed to Bring Budget Back into Balance

It’s been widely reported that state tax revenues fell well short of projections for the budget year that ended in June. But the nature of Wisconsin’s two-year budget means that the budget hole is likely to be bigger than many commentators realize, if current trends continue.

We already know that tax revenues fell $281 million short of projections for budget year 2013-14. That’s not good, but the end-of-year fund balance is enough to cover the shortfall, so it the shortfall doesn’t present any immediate problems.

The shortfall is likely to lead to bigger difficulties in 2014-15, the second year of the budget. Tax revenues for 2014-15 were projected to grow by 3.5% over 2013-14 amounts. But with 2013-14 revenues coming in so much lower than expected, 2014-15 revenues will be growing from a lower base. If 2014-15 revenues grow the originally projected 3.5% from the new, lower base, then at the end of the next budget year, Wisconsin would have a second shortfall of about $291 million. Read more

Budget Shortfall Shows Downside of Risky Approach to Tax Cuts

Wednesday, September 3, 2014 at 12:50 PM by

State tax revenues fell far short of projections for budget year 2014. The shortfall means that the state is likely to face another round of budget cuts — cuts that slow economic growth and reduce investment in education, health care, and our state’s workforce.

Categories: Blog, In Focus State Budget, STATE BUDGET, STATE TAXES | Comments Off

State Tax Collections Fall Far Short of Projections

Thursday, August 28, 2014 at 3:21 PM by

State 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.