Regularly putting money into the state’s Rainy Day Fund during periods of sustained economic growth helps build up a budget cushion on which the state can rely to cushion the impact of recessions and avoid harmful budget cuts. But before 2011, Wisconsin’s Rainy Day Fund sat mostly empty.
In 2011, 2012, and 2013, the state deposited money into the Rainy Day Fund when tax revenues came in higher than anticipated, building the balance to $280 million. But lawmakers made no deposits to the fund in 2014, 2015, or in 2016 so far. They pushed aside a requirement that part of higher-than-anticipated tax revenues be deposited in the Rainy Day Fund, and instead passed new tax cuts and allowed existing tax cuts to grow. Some of those tax breaks benefitted large corporations and taxpayers with high incomes.
There’s no hard-and-fast rule about how big a state’s Rainy Day Fund should be, but the Government Finance Officers Association recommends that states have at a minimum of 5% to 15% of annual general revenues set aside. Read more
Wisconsin lawmakers could learn a number of important lessons from Minnesota relating to budgeting. I’m not talking about the differences between the two states in budget choices relating to taxes and spending; that’s a topic for another day. I want to focus instead on state budget processes, transparency, and planning for economic downturns. Those are matters of bipartisan agreement in Minnesota, and they are areas where Wisconsin lawmakers should also be able to come together.
Minnesota’s budget practices have been on my mind because of a number of recent state and national reports that have cast the Gopher State in a positive light. Aside from the Vikings-Packers game in late November, Minnesota has been on a roll: Read more
SJR 55 Would Enable Private Group to Set Wisconsin’s Budget Parameters
A proposed constitutional amendment that is coming up for a public hearing this week is likely to have harmful unintended consequences. Although the proposed amendment – Senate Joint Resolution (SJR) 55 and its Assembly companion, AJR 66 – has the laudable goal of making state budgeting more transparent and more fiscally responsible, it would tie the hands of future lawmakers and delegate some of the authority to set budget parameters to an unelected private organization. One potential consequence is that Wisconsin could be prevented from withdrawing money from the Rainy Day Fund when that funding is needed most.
The proposed constitutional change would prevent lawmakers from passing a budget that causes or increases a deficit, based on Generally Accepted Accounting Principles (GAAP). GAAP is a set of accounting standards developed and periodically updated by a private national organization. The constitutional amendment would also require that every year until the state has eliminated the GAAP deficit in the General Fund (and in any other fund), lawmakers would have to use at least 10 percent of that year’s growth in the revenue deposited in that fund to reduce the GAAP deficit. Read more
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