LFB Papers Reinforce Our Concerns about W-2 Shortfall and EITC Shell Game

Monday, May 20, 2013 at 5:00 PM by

Shifting Federal Funding for Low-income Families to DOR Leaves Very Large Gap in W-2 Budget    

New Legislative Fiscal Bureau (LFB) papers reinforce concerns raised several weeks ago in the Budget Project’s issue brief about the federal funding being siphoned away from programs supporting low-income families.  The LFB papers, which are on the May 21 agenda for the Joint Finance Committee, examine the budget bill’s proposals for the use of federal block grant funds intended to serve low-income families.

One of our concerns was that the budget makes deep cuts in the funding for W-2 based on the unrealistic assumption that W-2 participation and spending would drop by 1% each month from the level in December 2012.  Although we noted that participation has been increasing, rather than decreasing, LFB paper #196 shows that the difference is even more substantial than we thought because the cost per family has also grown.  As a result, W-2 expenditures have increased 8.5% since September of last year, whereas the Dept. of Children and Families was expecting a decline of 5.9% during that period.  

The LFB paper lays out several scenarios – the most realistic of which seems to be Alternative 4.  It accepts the DCF projection that W-2 participation will decrease by 1% per month for most of the biennium, but it takes the increase over the last six months into account and assumes that the participation rate levels off and then begins to drop slowly in August and September, before starting to fall by 1% per month in October.  That alternative, which could still be assuming an unrealistically high rate of decline, costs $30.1 million more in 2013-15 than the budgeted funding level.  

Fortunately, there is a straightforward way to address the shortfall in W-2 and also to improve child care quality by not cutting as deeply in the funding for the Wisconsin Shares subsidy program. Legislators can make those two improvements to the bill and can avoid creating a large structural deficit in the next biennium by not shifting so much funding from the Temporary Assistance for Needy Families (TANF) block grant to the Dept. of Revenue (DOR).  The chart below shows how the budget would substantially increase the amount of TANF funds shifted to DOR to finance the Earned Income Tax Credit (EITC), even as total EITC funding is being reduced. 

The Wisconsin Council on Children and Families (WCCF) supports alternative #3 in LFB paper #205, which would reduce the amount of TANF funds being transferred to DOR for the Earned Income Tax Credit to $25.9 million per year.  That’s equivalent to the level in 2009-10 (before the last budget sharply reduced total EITC spending, but increased the use of TANF), and it’s almost four times the level in 2008-09, when just $6.7 million from the TANF funding was used to pay for the EITC.  

A full list of the items that may be considered on Tuesday by the Finance Committee can be found here, with links to each of the papers.   You can find WCCF’s recommendations on several of the papers here.

Jon Peacock

Categories: 2011-13 biennial budget, Blog, ECONOMIC SECURITY, EITC, STATE BUDGET, W-2 | Comments Off on LFB Papers Reinforce Our Concerns about W-2 Shortfall and EITC Shell Game

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