State climbing out of a budget hole

Rep. Dale Kooyenga, R-Brookfield, mingles with other legislators before Wisconsin Gov. Scott Walker's State of the State address last month. A year ago Kooyenga promised the state's structural deficit would be gone, but revenue projections turned out to be wrong.

M.P. KING — State Journal

A year ago lawmakers exuberantly approved a more than $800 million tax-cut package after budget forecasters projected a nearly billion-dollar windfall in unanticipated tax revenue.

Critics worried about a potential deficit in the 2015-17 budget, but Gov. Scott Walker and other Republicans countered that tax cuts would spur the economy and revenues would continue to grow.

“I will promise you that at this point next year the structural deficit will be gone,” Rep. Dale Kooyenga, R-Brookfield, told the State Journal in January 2014.

On Tuesday, Walker will propose a roughly $70 billion two-year budget plan that must solve a shortfall of about $2 billion. Among other things, it is expected to include a dramatic $300 million cut to the University of Wisconsin System in exchange for more autonomy, flat funding for K-12 public schools, agency mergers and borrowing for road projects rather than raising gas taxes or vehicle fees.

Part of the reason for the $2 billion shortfall is that the state is on pace to collect less than half of the projected $912 million windfall that was the basis for Walker’s tax-cut package last year. The nonpartisan Legislative Fiscal Bureau projects the state will end the year with a $233 million deficit after starting the year with a $517 million surplus.

Kooyenga, a member of the Legislature’s powerful budget committee, acknowledged that he was wrong to promise that the state’s structural deficit would be erased, but with five months to go in the current fiscal year there’s still time for state revenues to catch up to projections.

“I still think that the jury is out,” Kooyenga said. “I’m very confident in May (after spring tax collections are totaled) we’ll see more revenue.”

Walker spokeswoman Laurel Patrick said the state will end the fiscal year on June 30 with a balanced budget, though she didn’t provide a detailed accounting of how that will happen.

“The budget the governor will introduce on Feb. 3 will be balanced,” Patrick said. “He will build off the successes of his first term and will continue to focus on his top priorities: growing the economy, developing the workforce, transforming education, reforming government and investing in infrastructure.”

Unlike recession years when tough budget cuts result from declining tax revenue, this budget will include fairly solid tax revenue growth projections over the next two years — 4.7 percent next year and 3.8 percent in 2017 — for a total of nearly $2 billion that could be spent on new programs or to absorb tax cuts.

But agency requests for new general fund spending total more than $2.5 billion — including $760 million to continue current Medicaid programs, $695 million for K-12 education and $440 million for road projects.

Walker isn’t expected to grant all of those requests, though it remains to be seen how much he will tap the general fund for road spending and expansion of private voucher schools. He may try to rein in Medicaid spending with a proposal to drug-test beneficiaries, but it’s unclear how much that could reduce costs — and it might result in legal challenges that forfeit any projected savings.

Sen. Luther Olsen, R-Ripon, a member of the budget committee, said he expects to discuss with his caucus accepting a federal Medicaid expansion, which could bring in an extra $300 million over the biennium for the state’s BadgerCare program. Walker opposes the idea because of concerns the federal government will pull back the funding in the future, but other Republican-led states have capitulated to fill budget holes.

“We (turned down the federal Medicaid expansion) when we had money,” Olsen said. “Now we don’t (have money), so everything changes.”

Former Sen. Mike Ellis, one of several Republicans who raised concerns about Walker’s tax-cut proposal last year, said the reason the state faces a deficit is because “we pretty much dug a hole.”

Both Jon Peacock, executive director of the Wisconsin Budget Project, and Todd Berry, president of the Wisconsin Taxpayers Alliance, agreed with that assessment.

“The state’s current fiscal situation is a self-inflicted wound,” Peacock said. “This is going to be an extremely difficult budget for any lawmakers who don’t relish making deep cuts.”

Berry cited the permanent reductions in personal and corporate income tax revenues and permanent increases in spending on K-12 schools and technical colleges meant to reduce property taxes. “What we’ve done in the last couple years took a good whack at both sides” of the state budget, he said.

Fiscal bureau director Bob Lang said the corporate and income tax collection estimates that were used a year ago turned out to be off because jobs, wages and profits didn’t grow as much as anticipated.

In January 2014, the fiscal bureau estimated tax revenue would grow by 1 percent in 2014 and by 3.5 percent in 2015. Those estimates factored in the income and corporate tax cuts that Walker and the Legislature approved.

Instead, tax revenues shrank 2 percent last year, which means the state brought in $281 million less than anticipated. Revenues this year are expected to be short of projections by $255 million.

Senate Minority Leader Jennifer Shilling, D-La Crosse, blamed the state’s deficit on “a lagging economy, stagnant family wages and fiscal mismanagement.”

“While other states are creating jobs, investing in their communities and seeing strong budget surpluses, Wisconsin families are once again being forced to make sacrifices due to Gov. Walker’s cut-and-run policies that benefit the wealthy at the expense of our middle class,” Shilling said.

Other legislative leaders, including Senate Majority Leader Scott Fitzgerald, R-Juneau, Assembly Speaker Robin Vos, R-Rochester, and the two co-chairs of the Joint Finance Committee declined to comment.

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Matthew DeFour covers state government and politics for the Wisconsin State Journal.