Scott Walker file photo

Gov. Scott Walker

ANDY MANIS - Associated Press archives

A $66 million cut to the University of Wisconsin System's budget will not be made permanent, Gov. Scott Walker said in a letter to state agencies.

The university is one of a handful of agencies Walker wrote to Tuesday to declare them exempt from permanent cuts going into the next two-year budget cycle. The Associated Press obtained that letter Friday.

Walker ordered the state agencies to not include any spending increases in their two-year budget proposals due Sept. 17. Many other agencies have been told that cuts imposed earlier this year, known as lapses, would be made permanent going into the next budget cycle.

The order foretells another tight state budget for Wisconsin. When Walker took office in 2011, he faced a $3.6 billion shortfall and part of his solution included requiring state workers to pay more for health insurance and pension benefits, deep cuts to public education, local governments and state agency spending.

His budget, which also took away nearly all collective bargaining rights from most workers, triggered the recall effort that Walker survived in June.

State agencies are in the process now of submitting their spending plans for the next two years beginning in July 2013. Walker will release his budget to the Legislature early next year, which will likely pass a budget sometime in the summer.

On top of the $250 million cut in the current budget, UW was ordered to find another $66 million in lapses. That was the largest share of the $174 million in new cuts state agencies were ordered to make.

However, Walker issued exemptions for UW, the Department of Justice, the Department of Children and Family Services, the Department of Workforce Development and the Office of State Employment Relations.

"Exemptions to permanent lapses were made based on Governor Walker's priorities, which are job creation, developing our workforce, transforming education, investing in infrastructure, and reforming government," Walker's spokesman Cullen Werwie said in a statement.

UW's exemption is a pleasant surprise, said UW System spokesman David Giroux.

"The state's fiscal condition seems to be improving," Giroux said. "We're getting some comfort in the fact that the future is looking a little brighter."

The UW Board of Regents was scheduled to discuss its budget request at a meeting Thursday. UW received about 17 percent of the state's current two-year, $64 billion budget.

While UW won't have to carry forward the $66 million in cuts, Walker asked the university to submit a budget that doesn't include any additional spending. Giroux said the institution has been talking with Walker's administration about that and will discuss it more at the board meeting.

Some agencies are given permission by Walker to ignore the zero-growth budget request. Those are school aid, Medicaid programs, basic costs needed to continue operating prisons and Department of Health Services institutions, the Department of Children and Families' Division of Safety and Permanence, and the Department of Workforce Development's Division of Vocational Rehabilitation.

Walker's making some of the lapses permanent, while exempting others, is a more convoluted approach to budgeting, said Todd Berry, president of the nonpartisan Wisconsin Taxpayers Alliance.

"By locking in past policy that was uneven to begin with, then making more exemptions, it just becomes less and less transparent what you're trying to do," Berry said.

While most agencies are being asked to do more with less, the state's economy was "building speed," Walker said in his letter.

"As our fiscal momentum builds, I plan to guide Wisconsin into increasingly stronger fiscal climates, where budget surpluses and positive economic growth become the norm and not the exception," Walker said in the letter to agency heads.

Still, in the detailed instructions sent to agencies as they prepare their budgets, Walker warns that the next two years "will present many fiscal challenges brought on by global economic conditions and the continued slow economic recovery."

He called on agencies to "fundamentally review missions and priorities, exploring opportunities to reallocate resources, integrate programs and consolidate functions."

Walker said agencies should try to avoid layoffs to meet the budget goals.