DOR Reports Stronger Revenue Growth; Will a Larger Structural Deficit Result?

Wednesday, March 27, 2013 at 6:13 PM by

State revenue collections have picked up over the last three months, according to new figures released Wednesday by the Department of Revenue.  It’s much too soon to celebrate because the figures tend to be move somewhat erratically, but the 5% increase in tax revenue during the first two-thirds of 2012-13 (compared to the comparable period in 2011-12) is well ahead of the modest growth anticipated this year. 

I presume the Legislative Fiscal Bureau (LFB) will re-estimate revenue collections sometime in May, and there’s a possibility that the LFB will significantly raise the size of the projected surplus at the end of the fiscal year.  I hope that’s the case, but this is a very good example of needing to be careful of what you wish for.

Finishing a biennium with a substantial surplus is like winning the lottery.  It’s great news, yet also very perilous news.  More often than not, lawmakers who are looking to score political points will use the one-time revenue for ongoing tax cuts, ongoing spending, or some combination of the two.  The result is almost invariably a painful fiscal hangover in the following biennium (in this instance 2015-17) when the state faces a larger structural deficit because the long-term promises of more tax cuts or spending outlive the short-term revenue gain. 

Two years ago, Governor Walker made much of the fact that he was significantly reducing the structural imbalance.  In this budget he proposes using savings from the surplus to provide tax cuts and ongoing spending or transfers, in a way that restores a structural deficit — creating a hole of well over $600 million in the next biennium.  The hole Wisconsin faces in 2015-17 could get much deeper if the state surplus grows larger and lawmakers repeat their past mistake of using it in an unsustainable way.  

Jon Peacock

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