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Tax shortfall will squeeze state
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FISCAL BUREAU ANALYSIS | LOWER REVENUES PREDICTED

Tax shortfall will squeeze state

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Legislative Fiscal Bureau revises state budget projections down $100 million

The Legislative Fiscal Bureau on Thursday revised estimates for state revenues about $100 million down from where they were expected to be when Gov. Scott Walker signed the budget in July.

The state treasury will be $94.3 million lighter by the end of the 2015-17 budget cycle because of lower tax revenues, according to an updated snapshot of state finances from the Legislative Fiscal Bureau.

That could affect the scope of legislation lawmakers pass this session before adjourning to campaign prior to the fall election.

Lawmakers are considering legislation to make college more affordable, provide more services to Alzheimer’s and dementia patients and help people find jobs. All will cost money, and the latest figures mean lawmakers have only about $70 million available — on top of spending already authorized — through July 30, 2017.

Assembly Speaker Robin Vos, R-Rochester, said in December the legislation on his agenda for the session could cost “tens of millions” of dollars. Senate Majority Leader Scott Fitzgerald, R-Juneau, warned after this week’s State of the State address that the reduced figure would affect which bills the Legislature can adopt.

The state is now projected to end the current biennium with $135 million in the general fund, which is the same amount it ended the previous biennium with, according to fiscal bureau director Bob Lang.

State law requires a minimum $65 million general fund balance, so if lawmakers want to pass legislation that raises spending or cuts revenue, it can’t total more than $70 million without changing the law, Lang said.

The amount is a far cry from what the Legislature had at its disposal two years ago heading into an election cycle. In January 2014, the fiscal bureau projected a $1 billion general fund balance due to tax revenue projections exceeding conservative estimates that were used when the 2013-15 budget passed.

The Legislature used that projection to cut income and property taxes by about $541 million (or $131 on a median home and $46 on an average income tax bill) but the revenue projection turned out to be off. As a result, the state faced a $2 billion shortfall heading into the 2015-17 budget deliberations.

This year’s projected fund balance includes the spending associated with all bills enacted through Thursday, but not any upcoming bills the Legislature is working on this winter and spring. For example, Lang noted the changes to the civil service system awaiting Gov. Scott Walker’s signature will cost $6 million next year, which isn’t accounted for in the projected balance.

The new projected ending balance is $94.3 million below where projections were prior to the nonpartisan agency’s review. The reduction comes mostly from a $158.2 million decrease in projected tax collections, though expenditures are also expected to be $87.1 million lower. There are also other adjustments.

The reduction is a minuscule 0.6 percent of the $15.6 billion the state expects to receive in taxes in 2016-17. But the state’s reserves are also small. A recent study from George Mason University ranked Wisconsin 36th among states in being prepared to weather a recession based on its anemic fund balance and rainy day reserves.

Wisconsin has historically kept little to no reserves. Under Walker the state’s rainy day fund has grown to $280 million.

Walker noted in a statement the state has finished every fiscal year since he took office with a positive cash balance.

“We have a proven track record of keeping the state’s fiscal house in order, and these projections show the impact of our sound fiscal management,” Walker said. “We will continue to prudently manage taxpayers’ dollars while ensuring state government is more efficient, more effective, and more accountable to the public.”

Senate Minority Leader Jennifer Shilling, D-La Crosse, called the declining revenue numbers “another sign of Wisconsin’s underperforming economy and declining family wages under Republican control.”

“We’re never going to grow our middle class if legislative Republicans continue to drive down wages and outsource Wisconsin jobs,” Shilling said. “After the worst year for mass layoffs and plant closings in Wisconsin since 2010, we need to do more to turn things around. Democrats will continue to fight for investments in local schools, worker training and infrastructure projects to create jobs and move our state forward.”

Sen. Alberta Darling, R-River Hills, and Rep. John Nygren, R-Marinette, co-chairs of the Legislature’s Joint Finance Committee, highlighted that personal income continues to grow.

According to the fiscal bureau, personal income is projected to grow 4.2 percent in 2016 and 5.2 percent in 2017, though that was adjusted down from the previous forecast of 5.0 percent and 5.5 percent, respectively, due to reduced expectations for growth in wages, salaries, interest and farm income. Such a reduction, along with concerns that the national economy isn’t as strong as projected a year ago, contributes to state income and sales tax revenue projections being adjusted down.

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