DOA Says Projected 2013-15 Revenue Nearly Equals Agency Budget Requests

Tuesday, November 20, 2012 at 10:07 PM by

Modest Tax Growth Almost Matches Modest Requests – before Other Variables Are Taken into Account 

document released by the Department of Administration (DOA) Tuesday contains a revised estimate of tax revenue in the current fiscal year, and the preliminary estimates for the 2013-15 biennium.  The projected tax growth – just 1.8% this fiscal year, followed by 3.8% in 2013-14 and 3.4% the following year – is okay, but uninspiring, and less than the typical increases in the past.   Thanks in part to the fact that the 1.8% expected revenue increase this year builds on a higher-than-expected 2011-12 base, DOA estimates there will be a $348 million balance at the end of the 2011-13 biennium.   

The lengthy DOA document summarizes the agency requests for the coming biennium, and it compares the total amount of General Purpose Revenue (GPR) requested with the estimated revenue in 2013-15.  Notwithstanding the lackluster revenue growth, DOA calculates that requests only exceed the estimated 2013-15 revenue by $171 million GPR – which is a pretty manageable difference compared to past structural deficits, and is less than half of the expected  balance to be carried into the next biennium.   The relatively small structural deficit reflects the very substantial cuts made in the current biennium, coupled with the fact that most agencies submitted modest requests for 2013-15 (as instructed), and the agencies are once again being directed to make substantial lapses in the coming biennium. 

It’s important to note that the DOA document (like its predecessors over many different budgets) doesn’t account for several areas of potential spending increases, which enter into the budget process a little later, and it probably overstates one revenue source.  Here are a few of the factors that are likely to exacerbate the challenge of balancing the next state budget:

  • The document assumes that the state estate tax will resume next year and generate $219 million over the biennium.  Although that’s the default position under current federal and state law (and I would consider it a very welcome development), there’s very little chance of it actually happening.   
  • Several categories of spending don’t enter into the calculations until the Governor submits his budget proposal – including state employee compensation and fringe benefits, UW faculty pay adjustments, and increases for fuel and utility expenditures. 
  • Potential increases in debt service are only partially included in the current calculations. 

There are also a number of other possible budget challenges, including three that stand out for me:  First, the DHS request doesn’t include any estimate yet of the potential costs and savings from implementing the federal health care reform law.  Second, sequestration and other federal budget cuts could significantly reduce some important sources of federal revenue for the state and local governments.  Third, the Dept. of Children and Families budget assumes that there would be $50 million less TANF block grant funding sent to the Dept. of Revenue to help pay for the state Earned Income Tax Credit; however, the DOR request doesn’t contain any GPR funds to fill the potential hole in EITC financing.

Returning to the topic of the GPR tax collections in the current fiscal year, DOA cites increases relative to the May 2012 tax estimates as one of several signs of “more robust recovery.”  Although I think there’s something to be said for that reasoning, keep in mind that the improvement depends on the timeframe.  The good news is that the latest 2012-13 tax estimate is $87 million above the May projection, and $159 million above the Feb. 2012 Legislative Fiscal Bureau estimate.  The bad news is that it’s nonetheless $126 million below the estimate for 2012-13 that was made in May 2011, as work on the biennial budget was being finalized, and it’s only 1.8% above the actual 2011-12 tax revenue. 

Putting aside the matter of what the agency requests don’t include, I think most of the news in the DOA document is pretty positive.  However, that doesn’t mean that the 2013-15 budget will be an easy one to balance – especially if there are significant cuts in federal aid and another round of state tax cuts.

Jon Peacock 

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