DOA Estimates a $2.2 Billion Deficit at the End of 2011-13

Friday, November 19, 2010 at 11:02 PM by

It seems strange to hail as positive news that Wisconsin faces a budget deficit of $2.2 billion over the 2011-13 biennium. But that estimate, released today by the Wisconsin Department of Administration (DOA), is less than we would have guessed and less than the $3.1 billion estimated by a prominent Wisconsin economist two months ago.

However, before we breathe a big sigh of relief, it should be noted that the DOA calculations leave out a number of factors that are likely to increase the size of the state’s revenue shortfall — even without factoring in the proposals by incoming lawmakers to cut taxes.

Although the DOA report is sobering, it’s generally better news than we were expecting – in the following ways:

  • DOA projects that the state will finish the current fiscal year with a balance of $10 million.
  • The projected shortfall of $2.2 billion at the end of 2012-13 (based on a slightly adjusted comparison of the projected revenue and agency requests) is far below the $5.4 billion figure in the comparable DOA report two years ago.

Though we’re relieved that the figures aren’t worse, it’s important to note that several factors which haven’t been included will probably increase the size of the potential deficit.  First, the DOA calculations assume that the state estate tax will return next year, which seems highly unlikely.  Assuming it doesn’t, the deficit will grow by about $200 million. Second, as the report notes on p. 8, the budget requests at this stage of the process don’t include a number of significant items, including increased costs for: debt service, fuel and utilities, state employee compensation and benefits, and UW faculty pay adjustments.

The Governor-elect’s Transition director, John Hiller, complained that the DOA report “assumes $800 million in agency lapses requested  by DOA that will have to be administered by the Walker Administration.”  His press release concludes, ““When all of these measures are fully accounted for, we believe the true budget shortfall to be in excess of $3.3 billion.”

Yet even if the potential deficit is near the lower estimate of $2.2 billion, that’s still nothing to sneeze at.  To put that figure in perspective, that is about the same amount of money the state spends on the entire UW System over a biennium. The DOA deficit figure doesn’t change the fact that the 2011-13 budget will be a challenging one.

The budget deficit calculation is made by comparing the revenues expected to be available in the next biennium to the total amount of agency budget requests. DOA projects tax revenue increases of 4.2 percent in fiscal year 2012 and 3.4 percent in 2013. (That’s compared to a 7.1 percent drop in 2009.)

This report presents a snapshot of the potential deficit at this moment, but the fiscal landscape may change dramatically under the new governor and legislature. Governor-elect Walker has pledged to roll back a variety of policy changes made in the most recent budget that increased revenue. Doing so would likely reduce revenue and force additional spending cuts.

Two years ago, when comparable DOA calculations yielded a projected $5.4 billion shortfall for the 2009-11 budget, the deficit was subsequently reduced by measures in federal Recovery Act that were aimed at stabilizing the national economy and state budgets. For the 2011-13 state budget, there is likely to be little or no federal recovery money available to help fill the gap, and some federal proposals would add to it. (We’ll explore that challenge on a later date.)

Tamarine Cornelius and Jon Peacock

Categories: 2011-13 biennial budget, Blog, estate tax | Comments Off on DOA Estimates a $2.2 Billion Deficit at the End of 2011-13

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