The Walker administration has, to a large extent, returned to the fiscal difficulties of four years ago, a forecast by the state Department of Administration suggests.
The DOA in November made projections of state revenue, spending and general fund balances. The Wisconsin Legislative Fiscal Bureau will issue its projections later this month.
The projections are not so much an indication of where state finances will actually end up. They are an illustration of the magnitude of adjustments needed to comply with Wisconsin’s budget rules and to keep a positive balance in the state’s general fund. The adjustments are generally changes in tax policy and spending, or changes that push spending from one fiscal year into a subsequent year.
The press has significantly covered the DOA’s projection of a $2.2 billion deficit for the next two-year state budget. The more immediate problem, however, is the DOA projection for the general fund balance at the end of the current fiscal year, which is June 30. The projection is for the state’s general fund gross balance to be negative $132 million on that date.
This shortfall is not a large amount, compared to total projected revenue or projected appropriations for the fiscal year. But other factors should raise serious concerns. The fiscal year started last July 1 with a $516 million general fund balance. This means spending is projected to exceed fiscal-year revenues by $648 million, consuming all of the beginning balance and $132 million more.
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Wisconsin budget rules do not allow spending to exceed revenue in the second year of a biennium, so the current fiscal year was specifically exempted from the budget rules.
It is also important to remember that another phase of the Legislature’s manufacturing and agricultural tax credits took effect Jan. 1. This will reduce revenue collections from both individual income tax returns and corporate income tax returns in the second half of the fiscal year.
The problem becomes even more alarming when you consider that these projections include $695 million of revenue growth over the prior fiscal year — even though actual tax collections for the first five months of the fiscal year have run more than $100 million behind the same months of the prior fiscal year.
Part of this shortfall may be attributed to changes in the amount of money the state withholds from paychecks for income taxes. That will reduce revenue collections early in the fiscal year and reduce tax refunds later in the fiscal year.
On Nov. 24, the Fiscal Bureau issued a memo suggesting that withholdings may have been reduced by $166 million this fiscal year. So even when withholding changes are considered, the revenue growth projections seem overly optimistic.
A final observation is warranted: If revenues fall short of projections in the current fiscal year, then the beginning general fund balance and projected revenues in each of the next two fiscal years should also be reduced. For example, a $300 million shortfall in revenue this fiscal year could push projections for the next two-year state budget from a $2.2 billion deficit to a $3.1 billion deficit.
The Fiscal Bureau projections later this month will let the public know more.
Harris, of Oshkosh, is the Winnebago County executive who ran unsuccessfully as a Democrat for Congress in last fall’s election in the 6th District.