Please give to The Capital Times Kids Fund.

Learn how the annual fund drive helps our community.

State budget cutters in limbo until federal changeover in January

Steven Elbow  —  11/19/2008 9:07 am

State budget writers, struggling to overcome a $5 billion state budget shortfall, likely will be working in the dark until Barack Obama moves into the White House.

Democratic Congressional leaders have spent the fall trying to enact a series of aid packages to bail out struggling states. But they've hit a road block in President George W. Bush. And until states know what the federal government is going to do, their own budgets remain in limbo.

"We won't have any solid numbers until somebody passes something," Wisconsin's budget director Dave Schmiedicke said. "A federal stimulus is going to be part of the equation."

Fresh from a contentious $527 million budget repair last spring -- which pitted a Democratic governor and a Democratic Senate against a Republican-controlled Assembly -- the state now faces another half-billion shortfall in the current budget, and a projected $4.5 billion gap in the 2009-11 budget. With a new Democratic majority in the Assembly, Gov. Jim Doyle will probably have more funding options to draw on, including a hospital tax opposed by Republican leaders that would have brought in $125 million in federal dollars to help balance the budget.

But spending cuts will be part of the solution. The problem is, nobody will know just how deep they'll have to be until they know how much federal money is coming in.

Without White House support for any aid so far, "the only thing we can do is to put together a package that would be Barack Obama's first action when he's sworn in on Jan. 20," said U.S. Rep Dave Obey in a phone interview from his Washington, D.C., office.

Wisconsin is one of 40 states, along with the District of Columbia, that have deficits this year or expect deficits by 2010, according to a report released last week by the Center on Budget and Policy Priorities, which monitors state and federal budgets with an eye to how they affect low-income families.

Some states have escaped the fiscal nightmare for now -- many of them enjoying revenues from high oil prices. But they may see their luck run out as oil prices plummet, the report said.

Facing shortfalls, states are spending their reserves -- Wisconsin's rainy-day fund is already nearly depleted -- cutting spending or enacting tax hikes.

"What is happening around the country is the floor is just falling in, in terms of sales tax receipts, in terms of revenue generally to the states," Obey said. "And that means states are going to be forced to cut back significant funding, and it means they are also going to be stuck raising taxes. We would like to help minimize both of those actions by having a major assist to state government."

In September the House passed a $61 billion stimulus package. But the package stalled in the Senate because of a certain presidential veto.

While Doyle is in the midst of putting together his budget, Schmiedicke said federal inaction leaves questions that will go unanswered until shortly before the document is presented to the Legislature in February.

Federal funding will affect a variety of state programs, but will have its most major impact on Medicaid, which includes the popular BadgerCare program. BadgerCare has become a budget concern in its own right, having recently overrun expected costs by $25 million when it expanded coverage to more than 85,000 children and parents. Doyle wants to expand the program to low-income childless adults, but that expansion may have to wait for better economic times.

Medicaid accounts for nearly 15 percent of state spending. The state share of that spending is $1.8 billion a year, with the federal government kicking in about $2.5 billion more, Schmiedicke said.

The stimulus package passed by the House would have provided $15 billion to states in the way of added Medicaid funds. But Obey said that the economic picture has eroded since then and the final figure would likely be substantially larger. The measure would also have provided for major infrastructure improvements, which in the short term would put people to work, Obey said.

"We are trying to provide a package that would have a major infrastructure component so that we can put people to work building roads, building transit, building bridges, building airports, modernizing our rail system," he said.

Democratic leaders are also trying to expand unemployment benefits and fund a bailout of the collapsing auto industry "so we don't lose the major job generators in the economy," Obey said.

But the White House has refused to support any of it, Obey said.

"The problem is the Bush Administration is still thinking like Herbert Hoover when it comes to anybody but Wall Street," Obey said.

The Center on Budget and Policy Priorities, in its report, said the federal government has a poor track record for helping states through hard times. During the recession in the early part of the decade, the group said, federal help, which came in the form of Medicaid funding and general grants, didn't come until well into the downturn.

And the current downturn promises to be far worse, with 6.4 percent unemployment already exceeding the worst numbers recorded in the previous recession, creating a further drag on state revenue.

Obey agrees with the group's call for a bigger and quicker response by the federal government.

"Every month that we don't get action is another month deeper we are into job loss, into lack of confidence in the economy," Obey said. "It makes it harder to climb out. That's why we've been pressing every day to get the administration to sign on to something. But the only thing the administration talks about is the Columbia free trade agreement."

Steven Elbow  —  11/19/2008 9:07 am