Wisconsin Spending Needs Far Exceed the New Revenue Projections

Thursday, November 20, 2014 at 8:19 PM by

State Faces Gap of More than $2.4 Billion between Now and June 2017 

State officials confirmed today what we have feared for many months – that Wisconsin’s spending needs in the next biennium far exceed the projected revenue, and the state must also close a very substantial budget hole in the current fiscal year.  As a result, lawmakers are likely to make cuts that have harmful consequences for Wisconsin children and families and for the investments needed to keep Wisconsin economically competitive. 

Despite the assurances of Walker administration officials over the last couple of months that the state is in strong fiscal shape, the figures contained in a report released by the Department of Administration (DOA) today confirm that balancing the state budget in 2015-17 will require very deep spending cuts or significant tax increases. Specifically, the DOA document reveals the following:

  • Tax revenue for the current fiscal year is now expected to be $82 million below the amount estimated in May (on top of a $281 million tax shortfall in the first half of the biennium), and net appropriations are estimated to be $43 million less.
  • The state is on track to have a “net balance” of -$197 million at the end of this biennium, which means that significant cuts or transfers will have to be made to get the budget back into balance by June 2015 (and to preserve a required $65 million budget balance).
  • The agency budget requests, which generally followed the Governor’s instructions for just maintaining existing programs, exceed the anticipated General Purpose Revenue (GPR) by $2.2 billion during the 2015-15 biennium (assuming the state does carry over a $65 million balance).
  • The total gap between requested GPR spending and anticipated revenue is about $2.4 billion between now and June 2017, and that doesn’t account for various spending needs that are calculated later in the process (e.g., increases for debt service, state employee compensation and benefits, UW faculty pay adjustments, and a potential gap in funding for the Earned Income Tax Credit*).      [*See CORRECTION below.]

The large shortfall between projected revenue and spending can be attributed to a number of factors, including the following:

  • Overly optimistic revenue estimates early this year, which were used to justify the most recent round of tax cuts.
  • The decision by the Governor and state legislators to use all of this year’s projected revenue increase (associated with the overly optimistic estimates) for cutting taxes, which necessitated suspending the statute that requires half of such increases to be put into the rainy day fund.
  • Substantially increasing state spending for BadgerCare to cover childless adults, rather than financing that coverage expansion by taking the federal funding that would pay the full costs for the next couple of years (and could save more than $300 million in the next biennium).
  • The proposal to transfer $548 million in the next biennium from the General Fund to the Transportation Fund (which would be an increase of almost $275 million). 

The bottom line is that state lawmakers rushed through a package of tax cuts this year – despite early warning signs that tax revenue was starting to fall short of the projections, and that their actions were creating a severe imbalance between revenue and spending. If they are unwilling to roll back any of those tax cuts, they will have to cut more than $2.4 billion from current commitments and agency spending proposals to balance the budget this year and in the next biennium. 

If lawmakers insist on making additional tax cuts, that will require even deeper cutting in the public investments that are critical to Wisconsin’s economic vitality, such as our public schools and universities. 

The numbers released today illustrate that the next budget will be a pivotal one for our state. All of us will need to get actively involved in helping legislators and the public understand the potential consequences of some of the deep budget cuts that are likely to be proposed. 

You can read more  about the new budget figures and reactions to them in this WI State Journal article by Matthew DeFour. 

Dec. 2014 CORRECTION:  I was wrong in thinking that the DOA budget document failed to account for a potential gap in funding for the Earned Income Tax Credit resulting from the Dept. of Children and Families (DCF) proposal to significantly reduce the amount of federal TANF dollars used to fund the EITC.  Although none of the agency budget requests included the additional $55.8 million GPR that would be needed if TANF support for the EITC is reduced, the budget summary released by the Dept. of Administration (DOA) in mid-November does account for the needed GPR funding.  DOA analysts did not account for a comparable funding hole in the summary of budget requests that they released in Nov. 2012., and I initially overlooked the portion of their 2015-17 budget summary that accurately reflects the fact that because the EITC appropriation is a “sum sufficient” amount, the proposed reduction in TANF funding would necessitate a GPR increase. 

 Jon Peacock