By “CJ” Szafir, Institute for Reforming Government
At 7 p.m., Gov. Tony Evers will give his 2021-2023 budget address and announce his proposed biennium budget for the state of Wisconsin. To get ready for the evening, IRG gives you 5 things you need to know to access and analyze the budget:
- State Budget 101: money in, money out
Where does the money come from? According to the Legislative Fiscal Bureau (LFB), the following taxes are the sources of the general fund: 48% individual income tax, 34% sales and use tax, 9% corporate income and franchise tax, and the remainder is from public utilities and excise and insurance taxes.
Where does the money go? Well, we’ll find out more on Tuesday night. If the past is prologue, seven categories will receive the bulk of the funds: 35% for school aids, 17% for medical assistance (Medicaid), 8% for property tax relief, 7% for corrections, 6% for the UW system, 4% for shared revenue, and 3% for the Wisconsin technical system.
- The state of the state budget: not bad, considering…
Despite the global pandemic and government-mandated shutdowns of business, state finances are not as dire as other states. Although largely unexpected, new revenue estimates (January 2021) from the non-partisan LFB predict more than $1 billion above and beyond the estimates the Evers’ administration originally projected back in November 2020. Keep in mind, the LFB will likely provide revised estimates again in May, at the same time the Legislature’s Joint Finance Committee begins to tackle the bulk of the state budget.
Much of this is due to responsible budgeting including the rainy day fund (formally called the “Budget Stabilization Fund”), bolstered time and time again by former Gov. Scott Walker and Republican leadership. In addition, some state agencies are spending less than budgeted (referred to as “lapses” in the state budget world), which the Legislature will undoubtedly review during its budget deliberations.
According to the LFB, the rainy day fund has a balance of nearly $1 billion. Combined with COVID-related federal aid (discussed below), there’s no reason – or financial need – to burden taxpayers and put up hurdles to the economic recovery. If anything, we should be cutting taxes and creating a policy environment to help businesses expand out of the pandemic. However, Governor Evers has already announced a proposal to allow local governments to increase the sales tax.
In addition, Governor Evers’ Department of Revenue announced that Paycheck Protection Program loans that are forgiven by the federal government are subject to state taxation. This could cost state taxpayers and businesses over $400 million, per the LFB. The Republican Legislature is already advancing legislation to remedy this situation and protect Wisconsinites struggling to keep their businesses open and their heads above water.
- The #1 story of the state budget: federal money.
The amount of federal dollars flowing to the state will be massive – unlike any other recent budget. The CARES Act provided approximately $2 BILLION in new federal funding to Wisconsin, spread across health care, K-12 education, pandemic-specific items (such as the Paycheck Protection Program, COVID testing, and National Guard funds), and other purposes. The Consolidated Appropriations Act of 2021, passed by Congress and signed into law in December 2020, is projected to provide Wisconsin with hundreds of millions of additional federal funding.
While Medicaid and healthcare programs receive most of the attention regarding federal spending, K-12 schools also receive significant federal funding. School aids have been increased substantially by the CARES Act, which increased Title I funds and the governor’s discretionary funds.
For example, let’s look at the Milwaukee Public Schools: these aid packages, taken together, increase total federal per member (student) aid from just under $2,500 (2018-2019) to approximately $5,300 – an increase of approximately $3,800 per student. Madison Metropolitan School District has received an increase in federal aid of around $1,005 per student.
A reminder that these schools are receiving substantial increases in federal aid when their doors have been shut for almost 12 months.
None of this takes into account the upcoming “CARES 2” Relief, which will increase school aids, and the other areas discussed above, even further: President Joe Biden has proposed, and Congress is currently advancing, another $1.9 TRILLION, which would nearly double what the feds spent earlier in the pandemic.
- Look out for: growth in government.
Despite the stable fiscal position, Governor Evers already telegraphed his plan to expand Medicaid per the Affordable Care Act (potentially adding nearly 100,000 individuals to public assistance), as well as bolstering access to substance use disorder and mental health care treatment. Further spending increases are anticipated in unemployment insurance, roads, higher education, economic development and K-12. State agencies are requesting Governor Evers make massive spending increases. Overall, state agencies have requested a net increase of $755 million for the 2021-2023 budget, not including the Department of Public Instruction (DPI), which has requested an increase of more than $1.5 billion. Funded in full, these requests would likely leave the state in a budget hole.
Look out for increases in government programs and the number of full-time employees. Regardless, lapses — taxpayer resources not spent from prior budgets — are projected to be high. As referenced earlier, this means some state agencies have not spent money they were previously allocated. In other words, some agencies and programs have likely been over-budgeted.
- What comes next?
After Tuesday evening’s budget address, the Evers administration will work to sell its budget to the public. It will be sent to the Joint Finance Committee which – based on both history and philosophy – will work off of the previous budget rather than the governor’s proposal. This means the Legislature will essentially dismiss the governor’s overall proposal and start from the foundation built by the Legislature and Governor Walker. Governor Evers’ proposals will still be part of the deliberations, which typically extend into June and maybe July.
Impasses can drag this out even longer…Stay tuned and more to come!