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Report: Wisconsin faces big deficit, difficult budget session next year
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STATE BUDGET | PANDEMIC IMPACT

Report: Wisconsin faces big deficit, difficult budget session next year

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Wisconsin’s split government could face the most challenging budget session in a decade next year as state spending is projected to exceed revenues by about $373.1 million — without taking into account Medicaid costs and new spending requests from state agencies, according to a new report.

Using Wisconsin’s projected increases in tax collections and base spending, and excluding any new spending requests by state agencies, the nonpartisan Wisconsin Policy Forum projects lawmakers will have to navigate the state’s largest budget shortfall since 2011 as they draft the 2021-23 biennial budget.

Wisconsin faced a roughly $269 million structural deficit ahead of the 2017-19 budget and has been tasked with overcoming major shortfalls in previous budgets including in 2009 and 2011, when state reserves were more limited, but those years saw one party in control of both legislative chambers and the governor’s office.

“They needed to get consensus to do difficult things and unpopular things, but they only had to get it among members of their own party, so that’s a difference that we have this time. Even if what we have to do turns out to be not as unpleasant as some of the things we had to do then, we have to get consensus across the parties to do it,” Wisconsin Policy Forum research director Jason Stein said. “The difficulty may not be as much financial as political.”

To make up the $373.1 million difference, which amounts to about 1% of spending over the next two-year budget, Wisconsin may be forced to spend down reserves, adopt spending cuts or tax increases, delay payments or draw on federal funding.

The state Department of Administration said in a November agency budget requests report that “it is unlikely all budget requests from state agencies” will be approved. Earlier this year, Gov. Tony Evers’ administration reported state agencies were cutting $300 million from their current budgets to account for losses caused by the COVID-19 pandemic.

What’s more, the report does not include the projected $1.1 billion cost of maintaining Medicaid services or additional spending on COVID-19 measures or state aid to K-12 schools, the University of Wisconsin System, local governments or prisons.

The Policy Forum cautions that the report is merely a projection and any action by the federal government to pass a second round of funding could improve the state’s position. Any unused federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funds are set to expire at the end of the month, while Evers has estimated the state will need $466 million in the first quarter of next year in order to maintain existing COVID-19 measures.

WPF also reports the state could save a projected $588 million over the two-year budget if state lawmakers expand Wisconsin’s Medicaid program using federal funds available through the Affordable Care Act — something GOP lawmakers have long rejected.

“With the pandemic still spreading, all of these projections remain awash in uncertainty,” the Policy Forum reports. “On the one hand, the state’s tax collections could falter or dire new spending needs could develop. On the other, the situation could also improve if a vaccine and additional federal legislation help to bring about a recovery.”

The state is projected to end the current fiscal year on June 30 with about $2 billion in its general and rainy day funds, but proposed pandemic legislation by Evers (estimated at $541 million) and Assembly Republicans (estimated at $100 million) could reduce that total if approved. Senate Republicans have indicated they do not plan to convene before the end of December on any coronavirus-related measures.

“State officials may not want to commit all of the state’s remaining reserves in the next budget given the uncertainty surrounding the length of the pandemic and its economic fallout,” the Policy Forum report states.

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