Reports of Budget Hole May Understate Size of Problem
Budget Repair Bill May be Needed to Bring Budget Back into Balance
It’s been widely reported that state tax revenues fell well short of projections for the budget year that ended in June. But the nature of Wisconsin’s two-year budget means that the budget hole is likely to be bigger than many commentators realize, if current trends continue.
We already know that tax revenues fell $281 million short of projections for budget year 2013-14. That’s not good, but the end-of-year fund balance is enough to cover the shortfall, so the shortfall doesn’t present any immediate problems.
The shortfall is likely to lead to bigger difficulties in 2014-15, the second year of the budget. Tax revenues for 2014-15 were projected to grow by 3.5% over 2013-14 amounts. But with 2013-14 revenues coming in so much lower than expected, 2014-15 revenues will be growing from a lower base. If 2014-15 revenues grow the originally projected 3.5% from the new, lower base, then at the end of the next budget year, Wisconsin would have a second shortfall of about $291 million. Based on those assumptions, the total two-year shortfall in tax collections would add up to $572 million.
These calculations are also explained in this post, “State Tax Collections Fall Far Short of Projections.”
A lot could change over the next year, and it is possible (although unlikely) that tax revenues could grow enough to solve Wisconsin’s budget difficulties. But it’s not too early to start thinking about what options lawmakers have to solve a budget shortfall, should action be needed. There are two main approaches lawmakers can take to bring the budget back into balance after a revenue shortfall:
- If expenditures exceed revenues by more than 0.5% in either year of the two-year budget period, the Governor is required to submit a budget repair bill to the Legislature with recommendations for correcting the imbalance. As it currently stands, the revenue shortfall for 2014-15 is on track to be big enough to require a budget repair bill, according to a memo from the Legislative Fiscal Bureau. Governor Walker’s administration has quite a bit of leeway in determining how and when the determination of a revenue shortfall is to take place. Governor Walker and legislative leaders have downplayed the significance of the shortfall in general and specifically rejected the idea that a budget repair bill might be necessary.
- To address shortfalls that are not large enough to require a budget repair bill, the Secretary of the Department of Administration can require state agencies to cut their spending.
Wisconsin’s Constitution requires a balanced budget. Shortfalls that occur in the first year of the two-year budget period, as this one did, have the potential to cause more problems for the state’s bottom line than shortfalls that occur in the second year. Lawmakers are likely to re-balance the budget with more budget cuts, which could reduce resources for investments in Wisconsin’s schools, communities, and workforce.