Higher 2012-13 Revenue Collections Provide Modest Increase in Wisconsin’s Rainy Day Fund

Sunday, August 25, 2013 at 4:03 PM by

Good Budget News, but Growth Falls Short of Rumored Expectations

Tax collections were $71.5 million higher than anticipated in fiscal year 2012-13, according to figures released Friday by the Wisconsin Department of Revenue.  That’s very good news, although the size of the increase (0.5% above the amount projected in May) isn’t as large as rumors in the Capitol grapevine seemed to suggest.  Some lawmakers are probably a bit disappointed if they were anticipating enough additional funding to bolster arguments for even deeper income tax cuts or to mitigate some of the spending cuts in the last two budgets. 

I hope legislators aren’t disappointed to learn that half of the increased revenue ($35.75 million) will be deposited in the state’s “rainy day fund” (aka the budget stabilization fund).  Under current state law, half of any increase in tax collections in a fiscal year, relative to the amount estimated when the biennial budget bill was enacted, must be deposited in the rainy day fund.  In this case the remainder will boost the unrestricted General Fund balance that is being carried over into the next biennium. 

The increased tax revenue might trigger a debate about whether lawmakers should make even deeper tax cuts or should approve spending increases, such as increased school aid.  However, it’s a bit premature to have that debate, for a couple of reasons:

  1. We won’t find out until October 15 whether state spending was above or below projected levels and how the state fares with respect to other General Fund revenue.  That information could increase or decrease the amount being carried forward to 2013-15. 
  2. It could be quite a while before the Legislative Fiscal Bureau estimates if or to what extent the economic growth that boosted 2012-13 tax collections will yield a larger-than-expected increase during the 2013-15 biennium.

That second point is especially important because state policymakers need to take care not to use a short-term upturn in revenue for permanent tax cuts or spending increases.  As we explained in a recent Budget Project paper, the 2013-15 budget creates a smaller structural deficit than many others over the last two decades, but the budget bill also used a few fund shifts and other maneuvers that mask the magnitude of the fiscal challenge in the 2015-17 budget and beyond.  

According to the LFB, the new $35.7 million deposit in the Rainy Day fund will increase that fund to $279 million.  Although that’s higher than it has ever been, the combined reserves in the Rainy Day fund and the required “statutory balance” amount to just a little more than 2 percent of annual General Fund spending, which is well below the minimum of a 5% reserve that most states strive for.  With that in mind, phasing in a larger statutory balance is one of the options lawmakers should consider in coming months, as they debate options for using the modest increase in the balance being carried into the 2013-15 biennium.

Jon Peacock

Categories: 2013-15 biennial budget, Blog, rainy day fund, STATE BUDGET, taxes | Comments Off on Higher 2012-13 Revenue Collections Provide Modest Increase in Wisconsin’s Rainy Day Fund

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