Wisconsin got some good budget news this week, but our state may once again squander an opportunity to use an upturn in revenue to shore up its meager budget reserves. That’s very disappointing because states should set aside funding when revenue exceeds expectations, in order to have stronger reserves to weather economic downturns.
The good news this week was that the preliminary estimate of Wisconsin’s actual 2014-15 tax revenue is $71 million (0.5%) more than the last projection, which probably has a lot to do with the fact that national economic growth was stronger than previously estimated in the second quarter of 2015. Although Wisconsin’s individual income tax revenue fell below the projected level by about $24 million, corporate income tax collections are almost $70 million higher than expected, and sales and excise taxes are about $29 million above the anticipated amounts. The total is 4.3% above the amount in the prior year, though it falls about $100 million short of the optimistic Department of Revenue projection in November of last year. Read more
Legislators Change Guidelines for Agency Requests and Using Unanticipated Revenue
This afternoon the Joint Finance Committee (JFC) made several significant changes relating to how agencies’ biennial budget requests are submitted, as well as the size of the minimum budget balance and how the state handles “excess” revenue when General Fund revenue exceeds the projected amount. I think the changes approved today could be a case of taking two steps forward and one step back, but we may need to see the actual budget language before we can really assess the changes. Read more
If Legislators Are Truly Serious about Responsible Budgeting They Won’t Postpone a Long-Overdue Increase in State Reserves
For as long as I can remember, state politicians have been saying that Wisconsin needs to adopt more fiscally responsible budgets by doing things like increasing the state’s meager reserves and bringing revenue and spending into better alignment. Nevertheless, Wisconsin lawmakers continue to postpone building up budget reserves. Instead, when there is a projection of “surplus” revenue it is often used in unsustainable ways that add to the state’s future fiscal challenges.
This Tuesday, May 19, the committee that reviews and revises the state budget bill will have a chance to increase reserves and reduce the “GAAP deficit” (i.e., the gap between state revenue and spending obligations calculated according to Generally Accepted Accounting Practices). That will be decided when the Joint Finance Committee votes on whether to once again delay a statute that now requires increasing the state’s general fund balance to at least 2% of general fund spending in fiscal year 2017-18. Read more
Lawmakers Should Stop Delaying Requirement for an Increased Budget Reserve
Groundhog Day always makes me think of the Bill Murray movie, and the movie sometimes makes me think of the Wisconsin budget process. This year as I contemplate Murray’s almost endless entrapment in a Punxsutawney PA time loop, I can’t help wondering whether Wisconsin lawmakers are doomed to keep making the same fiscal policy mistakes, such as failing to set aside adequate reserves that could keep the state from having a deficit every time tax revenue falls short of the unanticipated level. We may get at least a partial answer to that question when the Governor introduces his budget Tuesday.
The $283 million deficit that the state must close over the next five months (in addition to the $2 billion structural deficit in the next biennium) once again makes the case that state policymakers need to budget more cautiously. A great place to start is to stop postponing a state statute that requires lawmakers to set aside a reserve or budget cushion equivalent to at least 2% of spending at the end of each fiscal year. Read more
Will the Governor’s Next Budget Postpone the Statute Requiring an Increased Budget Balance?
A new set of comparative fiscal data published online last week by Pew Charitable Trusts reinforces the conclusion that Wisconsin needs to build up its budget reserves. The dataset in question shows that Wisconsin was expected to rank 35th at the end of fiscal year (FY) 2014 in the relative size of its budget reserves, and that ranking was based on figures collected last summer – when the state’s budget balance was far higher than it is expected to be at the end of the current fiscal year.
One key sign of whether state policymakers are interested in addressing the problem and establishing a more prudent budget reserve will come in February, when we see if the Governor once again postpones the effective date of a statute intended to increase the minimum balance that the state must aim to have at the end of each fiscal year. 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
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
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.
State lawmakers seem intent on passing the property and income tax cut package proposed by Governor Walker. So far the proposal has passed the Assembly, has been approved with minor changes by the legislature’s budget panel, and was approved by the Senate today. The proposal will need to head back to the Assembly for final approval before being signed by Governor Walker.
Here are five things to know about the tax cut proposal. Some of them have been well-reported in the media, but others have received little attention.
1. The proposal cuts income and property taxes, for a total of $537 million in tax cuts over two years after factoring in indirect impacts. Here is how that amount breaks down:
- $404 million in an across-the-board property tax cut.
- $99 million for reducing the bottom income tax bracket from 4.4% to 4.0%. The maximum benefit from this measure would be about $58 per year.
In their eagerness to provide tax cuts, state lawmakers have pushed aside a law aimed at encouraging fiscal responsibility that requires half of state surplus revenue be set aside for a rainy day.
When the budget surplus of nearly $1 billion over two years was announced earlier this year, it seemed likely that Wisconsin’s rainy day fund would get a much needed boost. State law requires that when revenues exceed budgeted amounts, half the additional revenue must be deposited into the state’s rainy day fund, which is used to cushion against future economic downturns. In the absence of a tax cut package, the projected level of surplus would result in an additional $443 million transferred to Wisconsin’s rainy day fund over the next two years.
Wisconsin’s rainy day fund has long been underfunded. In fact, for years that fund was nearly completely empty. Since the end of the recession, the state has been regularly depositing money into the rainy day fund when revenues have exceeded projected amounts, and Wisconsin’s rainy day fund currently has a balance of $279 million. Read more