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Wisconsin’s Federal Funds Conundrum: Inconsistent Approaches Undermine Arguments about Sustainability

Short-term Federal Dollars Build up the Balance Used for Permanent Tax Cuts 

The underside of the Wisconsin Capitol Dome

More bad budget choices in Wisconsin.

I find it very puzzling how state lawmakers decide if they will accept federal dollars and how they explain their choices.   State budget writers routinely accept many sources of federal funds, such as highway dollars, yet they question the sustainability of other sources – such as the enhanced Medicaid funding that would actually save Wisconsin taxpayers $119 million during the 2013-15 biennium.  At the same time, other much less reliable sources of federal funds are being used to generate lapses to the General Fund, thereby helping increase the size of the permanent tax cuts in the budget bill.

These inconsistencies in how lawmakers decide what to do with federal funding are timely this week because the Joint Finance Committee votes tomorrow on a plan for using lapsed funds (including a couple of federal funding sources), and because of the recent news about the state’s decision not to fully utilize additional federal dollars that could bolster employment services for people with disabilities.

The Center for Investigative Journalism reported last week that the state is forgoing federal funds that would enable it to serve most of the more than 4,000 people with disabilities who are on a long waiting list for employment services.   They pointed out that a Legislative Fiscal Bureau analysis concluded that Wisconsin could get an additional $14.2 million in federal funds over the next two years if it were to come up with a $3.9 million match.  According to Mike Greco, Administrator of the Division of Vocational Rehabilitation (DVR), “If we did receive our full state match we could work with another 3,000 individuals.”

When the issue was debated in the Joint Finance Committee (JFC) in mid-May, the chief argument used against drawing down all of the federal money seemed to be very similar to the primary justification for not taking the enhanced Medicaid funds.   The Center’s article reports that Rep. Dean Knudson (R. Hudson) said the JFC decision was based on “protecting Wisconsin citizens from potential further reductions in federal funding.”

That line of reasoning hasn’t been applied to all sources of federal funds (which comprise 28% of the 2013-15 state budget).  On Thursday the JFC finally has an opportunity to vote on the Walker Administration’s plans for lapsing certain state and federal dollars to the General Fund (a couple of weeks after those lapses occurred).   The lapses include at least two short-term sources of federal funding, the largest of which is an additional transfer of federal performance bonus funds that the state earned for the success of BadgerCare in increasing the number of children participating in Medicaid.  The additional $8.36 million of bonus funding being lapsed brings the total to $47.8 million during the 2011-13 biennium (versus $8.76 million of that federal funding used to help finance Medicaid costs).

Those lapses and others have added to the General Fund balance of more that $600 million that the state estimated it would have at the close of the state fiscal year on June 30, 2013, which helped make it possible to increase the size of the income tax cuts in the recently enacted budget bill.   Keeping in mind that the federal bonus funding ends later this year, the state is essentially using a federal revenue source that it knows will soon end to help pass permanent tax cuts – even as state policy makers argue that we shouldn’t accept federal dollars that might hypothetically be reduced at some future date.

Another example of that is the way the state has been shifting federal TANF block grant funding to the Department of Revenue to free up state General Fund dollars that had been financing the Earned Income Tax Credit.  That maneuver (explained in more detail here) will eliminate all or almost all of the $80 million TANF balance – thereby using a one-time source of federal funding to build up the state General Fund balance and make the income tax cut easier to pass, despite the fact that it creates a gap between ongoing revenue and ongoing expenditures (i.e., a structural deficit).

In comparison to those federal dollars, which conservative state lawmakers are happily using for an ongoing purpose – even though we know those sources of federal funds will soon end, the additional federal funding for employment services look quite secure, and it would have a far more concrete payoff.    As I said at the outset, I find these choices very puzzling.

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Photo by cimexus released under a Creative Commons license.

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WI Budget Project

WI Budget Project