New Report Brings Good and Bad News for Wisconsin Budget
Wisconsin finished the last fiscal year with a balance in the general fund of $135.6 million, according to the annual budget report issued by the Department of Administration today. Although that balance only amounts to a cushion of about 3 days of spending, it’s still relatively good news because the Legislative Fiscal Bureau (LFB) estimated back in January that the state was on track to finish the 2014-15 year with a deficit of $283 million.
One part of the turnaround was an increase in tax revenue of $71 million, relative to the more pessimistic forecast by the LFB in January. Compared to the previous fiscal year, general fund tax collections grew by $593 million or 4.3% in FY 2014-15.
Although some of the news in the annual report is positive, a careful analysis of the report casts a more worrisome light on the state’s fiscal situation. In particular, the report reveals that net spending from the general fund surpassed revenue by more than $503 million last year – even though spending was suppressed by postponing $108 million of debt payments and by cutting compensation reserves by $98 million. The $503 million gap between revenue and spending was closed by drawing down most of the $639 million balance the state had at the beginning of the 2014-15 fiscal year.
The task of going from a potential deficit of $283 million to an actual balance of $135 million was complicated by the fact that gross spending obligations increased by $128 million relative to the previously estimated amount. The new DOA report shows how the potential shortfall was averted:
- As noted above, general fund tax revenue climbed by $71 million (0.5%) relative to the January estimate.
- The Potawatomi tribe paid the state almost $49 million from gaming revenue in 2014-15, after not making any payment during the previous fiscal year.
- Compensation reserves were reduced by $98 million, which represents almost a 75% reduction in the modest amount that had been appropriated for small increases in salaries and benefit costs for state employees.
- The Governor temporarily saved $108 million by delaying short term debt payments, pushing those costs into the future.
- Lapses from state agency budgets were increased by $210 million, to a total of nearly $535 million. That total includes the $108 million savings from delaying debt payments and $177 million lapsed from education appropriations.
- The 2014-15 opening balance was $122 million higher than previously expected.
As legislators developed the 2015-17 biennial budget, they anticipated an opening balance of only $250,000. The actual amount is $135.3 million more than that, which is a big relief.
I suspect that some lawmakers will want to use the improved balance to reduce taxes or to increase spending. However, they need to keep in mind that the balance amounts to only about three days of spending, and we need to build up larger reserves. In addition, the current budget already creates a significant gap between revenue and spending going into the following biennium. With that in mind, state policymakers need to take care not to use a one-time carryover of funds to increase permanent obligations in a way that would further complicate the task of balancing the books in the 2017-19 biennium.