Proposed EITC Funding Shift Reveals another Budget Hole

Friday, October 10, 2014 at 4:50 PM by

TANF Funding Squeeze Creates a Substantial Budget Challenge 

The Department of Children and Families (DCF) budget proposes a very large cut in the portion of funding for the Earned Income Tax Credit that comes from the federal welfare reform block grant, which is known as Temporary Assistance for Needy Families (TANF). Specifically, the department’s 2015-17 budget proposes cutting $55.8 million from the TANF funding that gets transferred to the Department of Revenue, which would mean that state General Purpose Revenue (GPR) has to fill the very substantial gap. 

Assuming the Walker Administration isn’t planning to cut the EITC, I applaud DCF for wanting to use state funds rather than TANF funds to finance that credit for low-income working families. Unfortunately, the Department of Revenue (DOR) budget proposal doesn’t currently include an increased GPR appropriation for the EITC. Taking both agency proposals together, we have a $55.8 million hole that needs to be filled by state policymakers, and that problem is on top of the other structural budget challenges that have gotten more media attention.   [See UPDATE below.]

Wisconsin’s TANF allocation has been frozen since the inception of the block grant almost 20 years ago and has lost 34% of its value in that time. In addition, during the early years of the block grant, states weren’t allowed to use TANF funds to supplant state spending for the EITC. Because of the decline in the real value of the block grant, the use of a large portion of TANF dollars to replace state support for the EITC, and cost increases in some of the other supports for low-income families, DCF is in a severe fiscal bind.

It was for those reasons that the use of TANF funds for the EITC was reduced to an average of a little under $20 million per year from 2007 to 2010; however, Governor Walker’s last two biennial budgets increased that amount to $43.7 million a year, and then to $62.5 million yearly in the current biennium. (Yet despite the fact that the amount of Wisconsin’s TANF allocation being spent for the EITC has increased sharply over the last several years, state lawmakers cut total EITC spending by significantly reducing the size of the credits for families with two or more children.)

The state has managed to use more TANF funding for the EITC in recent years by substantially reducing the appropriations for the Wisconsin Shares child care subsidy program for low-income working parents. Policymakers have achieved those cuts by changing how child care is reimbursed and by freezing rates for most providers since 2006. The combined impact of those changes has greatly reduced the number of providers participating in Wisconsin Shares and is hurting child care quality.

In the coming weeks and months we’ll take a closer look at the DCF budget and the stakes for child care quality and access. For now, we urge state policymakers to support the DCF proposal and restore GPR funds for the EITC to a level much closer to where it was five years ago. Failure to do so could have very damaging consequences for Wisconsin Shares and other TANF-funded assistance for low-income families.

Dec. 2014 UPDATE:  Although none of the agency budget requests included the additional $55.8 million GPR that would be needed if the DCF proposal to reduce TANF spending for the EITC is approved, in November when the Dept. of Administration (DOA) put together its summary of all the agency requests, it decided to account for the needed GPR funding.  That decision reflects the reality that since the EITC appropriation is a “sum sufficient” amount the requested reduction in TANF funding would necessitate a GPR increase. 

Two years ago the DOA summary document did not reflect the need for the additional GPR funds, so I wasn’t expecting it to do so this time.  I was pleased to find that I was wrong about that.  The fact that their budget summary now reflects the need for the additional $55.8 million GPR does not indicate a commitment by the Walker administration to approve the DCF request; it simply provides a more accurate accounting of the size of the GPR budget hole ($2.2 billion) that would need to be filled if all the agency requests were approved. Kudos to the DOA budget analysts for more accurately sizing up the budget shortfall in the November document than in the comparable document two years ago.   

Jon Peacock


One Response to “Proposed EITC Funding Shift Reveals another Budget Hole”

  1. […] a $55 million hole in the state’s budget that leaves little to no room for funding the EITC. (Wisconsin Budget Project, Wisconsin Public […]