Gov. Scott Walker on Wednesday called for nearly $600 million in reduced taxes and fees along with significant new spending in areas where he made sizable cuts in the past as part of his $76.1 billion two-year budget proposal.

Total spending under the plan would grow by nearly $2 billion, or 4.2 percent over the previous two-year budget. Taxpayer-supported spending would increase nearly $600 million. The total number of state employees, who would receive two 2 percent raises and have their health care managed and paid for by the state, would increase by about 262 positions, including about 20 taxpayer-supported positions.

The budget includes several changes to state government, including proposals to self-insure all employees, centralize more agency administrative functions under the Department of Administration and eliminate printing and mailing requirements in several areas.

Walker is presuming self-insuring workers would save the state $60 million over two years, though previous studies have suggested the move could have the opposite effect and cost the state more. If savings don’t materialize the state would pull back on the more than half-billion dollars in new funding for K-12 schools.

Republican lawmakers expressed skepticism at both the self-insurance proposal and the large increase in K-12 spending. Senate Majority Leader Scott Fitzgerald, R-Juneau, said the Legislature’s budget might reduce Walker’s boost to K-12 education to fund other priorities, such as cuts to taxes on utilities and some business property.

“There’s a lot of different priorities,” Fitzgerald said. “We should be cautious and wait to see the finance committee work through those dollars to see exactly what can we get support for.”

Walker plans to keep most ongoing major highway projects on track, partly by ending a wage-floor requirement for workers on state-funded construction projects, known as the prevailing wage, and by paying off debt and diverting petroleum inspection fees used for paying that debt through 2026, a move expected to save $431 million over that period.

The state would close a nearly $1 billion roads shortfall over the next two years by borrowing $500 million — the smallest amount since 2001-03 — and pushing back major projects in southeast Wisconsin, such as a reconstruction of Interstate 94 between Madison and Milwaukee and part of the Zoo Interchange in Milwaukee County.

Assembly Speaker Robin Vos, R-Rochester, reiterated his support for increasing the gas tax, which Walker’s budget does not do. He also emphasized his opposition to a 5 percent University of Wisconsin System tuition cut Walker has proposed, saying money should go to financial aid.

“Just because he’s the governor doesn’t mean that we just salute,” Vos said.

Tax cut details

Walker is proposing to cut the state’s two lowest income tax rates by a tenth of a percentage point — to 3.9 percent and 5.74 percent — and increase the amount of income taxed at the second-lowest rate by about $30,000. A median income four-person family making about $86,000 a year would save $139 over two years, while state revenues would decline by $203 million under the proposal.

Walker is also seeking to make good on a promise to reduce property taxes below 2010 levels by eliminating a state forestry property tax that brings in about $90 million a year and paying for the programs it funds with other state tax revenue; boosting a property tax credit by $87 million; and increasing aid to school districts by $72 million, which, paired with a state-imposed lid on district revenues, will drive down property taxes.

Walker also plans to create a sales tax holiday in August on certain school supplies, clothing and computers, estimated to cost the state about $11 million in lost sales tax revenue.

His budget also increases a tax credit for low-income working families with one child and increases the Homestead Tax Credit for seniors and the disabled.

The increased funding for K-12 schools, the UW System and in the earned income tax and homestead credits are in areas where Walker has proposed deep cuts in the past.

Walker said “common sense reforms” and “wise fiscal management” in previous budgets have led to a strong economy and a positive outlook going into the next budget.

“We call this the reform dividend,” Walker said during an address Wednesday to a joint session of the Legislature. “And wow, as the Fiscal Bureau pointed out, that’s a whole lot of money.”

Walker’s spending plan for the two years that begin July 1 will first go to the Legislature’s 16-member Joint Finance Committee, made up of 12 Republicans and four Democrats, where it likely will undergo several changes. The Republican-controlled Senate and Assembly will then have an opportunity to make further changes.

During those deliberations the nonpartisan Legislative Fiscal Bureau will provide updated revenue projections, which Fitzgerald said could result in more revenues or less.

Structural deficit ahead

Walker adds $20 million to the state’s rainy day fund, pushing it above $300 million, and the state would end the 2019 fiscal year with an $8 million balance. However, he also packs a lot of the new spending and tax cuts into the second year of the biennium, which contributes to a structural deficit — the amount of money the state expects to spend relative to revenues if nothing changes — in 2019-21 of $738 million.

The $76 billion total spending figure is $8 billion more than what Walker proposed in each of his last two budgets before the Legislature made changes. Walker spokesman Tom Evenson said increases in this budget are largely driven by increases for K-12 funding, Medicaid and tax relief.

Rep. John Nygren, R-Marinette, budget committee co-chairman, said he’s concerned about increasing state spending.

“When you talk to citizens they aren’t so concerned about the total number, they’re concerned about first of all funding their priorities, things that are important to them, and then their overall tax burden,” Nygren said. “So I’m not going to get caught up in the size of the number, but I am concerned about the trajectory of spending.”

Nygren said areas where the Legislature could differ with Walker include the UW tuition cut, how to fund transportation and self-insurance. Nygren said the budget committee would hold a hearing on self-insurance, which could negatively affect the state’s health insurance market.

For the 2017-19 state budget, Walker and lawmakers are working with revenue estimates that are about $700 million better than expected in the fall when agencies prepared their budget requests. The better budgeting position comes from improved economic forecasts since the November presidential election, which translates to higher tax collection projections and lower-than-anticipated Medicaid costs.

Election on horizon

The new spending for public schools and universities and numerous other government operations comes as Walker is mulling a third term and as his approval rating hovers around 40 percent. His 44 percent rating last October was its highest since early 2015, when he embarked on a failed bid for the presidency and engineered a 2015-17 state budget that included unpopular cuts to K-12 schools and the UW System.

“What we saw today is what you might expect from somebody who is getting ready to run,” said Sen. Kathleen Vinehout, D-Alma, who is mulling a challenge in 2018.

On Wednesday, ahead of Walker’s budget release, Democratic lawmakers who sit on the budget-writing committee said Walker’s proposals were too little and too late.

When asked whether Democratic lawmakers think Walker’s proposal to add $649 million in new spending for schools is a bad idea, Sen. Lena Taylor, D-Milwaukee, said the proposal signals Walker is pushing difficult budget decisions to the Legislature.

“Is it real?” said Taylor. “Or is he specifically punting so the Legislature has to govern?”

Sen. Jon Erpenbach, D-Middleton, also criticized the priorities of Walker’s budget proposal, saying it likely won’t address the transportation budget deficit.

“The governor is choosing re-election over safe roads and bridges here in the state of Wisconsin,” Erpenbach said.

Reporter Mark Sommerhauser contributed to this report.

Capital W: Plug in to Wisconsin politics

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