Wisconsin is projected to take in about $818 million more in tax revenue than expected by June 2021, which has lawmakers already contemplating how they’d like to spend the extra funds, despite the state running a deficit with each of its budgets for at least the past 30 years, under generally accepted accounting principles.
Revenue projections by the nonpartisan Legislative Fiscal Bureau report the state is expected to close out the biennium with a general fund balance of about $620 million. That’s nearly $452 million more than originally projected when the 2019-21 biennial budget was enacted last summer.
With the added revenue, Republican leaders have said they’d like to explore possible tax cuts, while Democratic lawmakers are more interested in investing in underfunded programs. Democratic Gov. Tony Evers last May pushed to use increased tax dollars to pay down the state debt and invest in worker training and the Wisconsin Technical Colleges System.
Senate Majority Leader Scott Fitzgerald, R-Juneau, who is running for Congress, said Wednesday he would support a tax cut.
“I’m still pushing hard for a tax cut, I think, in lieu of other things you could spend those revenues on, I’d like to see something directed at property taxes,” Fitzgerald said. “People are pretty upset with the bills that they just received in December so I think it really could gain some momentum as we move forward.”
Fitzgerald said in a statement Thursday he will be working to get a tax cut proposal addressed before the Senate adjourns in March.
Assembly Speaker Robin Vos, R-Rochester, earlier this week said tax cuts or paying down the deficit are good possibilities.
“We’re not being stingy, we’re trying to be smart and I would say, if it’s $1 million or $100 million, it really doesn’t change our modus operandi to say we’re only going to invest in the things that work,” Vos said. “But of course there’s always taxes in Wisconsin that are higher than they should be.”
Any tax cut passed by the Legislature would have to be signed by Evers to go into effect.
Assembly Minority Leader Gordon Hintz, D-Oshkosh, argued the funds should be used for “areas of urgent need,” such as school-based mental health care initiatives called for by Evers following incidents last year at Oshkosh and Waukesha high schools. Hintz also suggested addressing years of funding cuts at the University of Wisconsin System.
“With this news comes opportunity,” Hintz said in a statement. “Shortsighted decisions by Republicans during the state budget debate resulted in cuts that are worth reconsidering at this time.”
The bureau report notes the nearly $452 million in added revenue can be largely attributed to increased tax collections. In addition, the report anticipates a $20 million increase in departmental revenues and a nearly $23 million decrease in net appropriations.
State law requires half the new revenue, or about $409 million, to be deposited into the state’s Budget Stabilization Fund, a rainy day fund to be tapped in times of recession or fiscal emergency. That would bring the fund to more than $1 billion by June 2021.
In addition, the state’s 2019-21 budget included an expectation the state would pay $212 million in tax credits to Foxconn Technology Group for the Taiwan-based electronics manufacturer’s facility in southeast Wisconsin. The bureau’s report notes that, based on the project’s progress at the end of 2019, it’s estimated that Foxconn is only eligible for between $50 million and $75 million in credits.
In October, the state’s general fund balance surpassed $1 billion for the first time in state history. However, financial experts anticipated a subsequent drawdown in state reserves by more than $800 million over the biennium, due to high-dollar items in the 2019-21 biennial budget, including an income tax cut and increased education funding.
General fund revenue is largely generated from taxes. General purpose revenue taxes were $17.3 billion last fiscal year, compared to $16.1 billion the previous year, marking a 7.4% increase, according to an October report from the Legislative Fiscal Bureau.
Leaders of the state’s Joint Finance Committee, Sen. Alberta Darling, R-River Hills, and Rep. John Nygren, R-Marinette, said in a joint statement the new revenues are thanks to a strong economy and careful budgeting.
“We didn’t get here by accident,” Darling and Nygren said in the statement. “With this new revenue, Republicans will continue to look for ways to protect taxpayers instead of growing government.”
An analysis of financial statements released this week by the nonpartisan Wisconsin Policy Forum shows a more than one-third reduction in the state deficit last year, with the general fund resting at $773.5 million at the end of the 2019 fiscal year on June 30.
That’s based on what are known as generally accepted accounting principles or GAAP accounting. By law the state budget must be balanced, and the state has achieved that for decades by using a different accounting system.
The state’s GAAP deficit is the lowest in at least 30 years, when adjusted for inflation, but the report notes Wisconsin’s main fund still trails nearly every other state.
The report goes on to note that, while Wisconsin is in a better position now than in previous years, the state remains one of only three — along with Illinois and Kentucky — that still has a negative general fund balance and could be vulnerable in the event of an economic downturn.
“So far this year, state tax revenues have shown strong growth, which if sustained might help maintain the general fund balance,” according to the report. “However, at some point growth in the economy and tax collections will falter. That could bring a return to growth in the deficit similar to 2001, when the recession that year caused the negative balance to grow after several years of improvements.”