Wisconsin Has Smaller Budget Reserves than Most Other States
Will the Governor’s Next Budget Postpone the Statute Requiring an Increased Budget Balance?
A new set of comparative fiscal data published online last week by Pew Charitable Trusts reinforces the conclusion that Wisconsin needs to build up its budget reserves. The dataset in question shows that Wisconsin was expected to rank 35th at the end of fiscal year (FY) 2014 in the relative size of its budget reserves, and that ranking was based on figures collected last summer – when the state’s budget balance was far higher than it is expected to be at the end of the current fiscal year.
One key sign of whether state policymakers are interested in addressing the problem and establishing a more prudent budget reserve will come in February, when we see if the Governor once again postpones the effective date of a statute intended to increase the minimum balance that the state must aim to have at the end of each fiscal year. That statute requires the state to seek to finish each fiscal year with a balance of at least 2% of General Fund spending (roughly $300 million), but each of the last several budget bills has pushed that requirement further into the future. (The last budget bill delayed it until FY 2017-18.)
The information on budget reserves on the Pew website is one part of “Fiscal 50: State Trends and Analysis,” which is an interactive resource that allows you to sort and analyze data on key fiscal, economic, and demographic trends in the states and their relationship to states’ fiscal health.
The figures used by Pew relating to budget reserves are imperfect in a couple of respects, but I think the ranking is in the right ballpark for FY 2014. However, the last tax cut bill spends down the state’s budget reserves, and lower-than-anticipated revenue collections are exacerbating the problem. As a result, I think it’s very safe to say that Wisconsin’s ranking will be considerably lower than 35th when it is updated for FY 2015.
One of Pew’s recommendations for states is that they should put revenue into their rainy day fund when there are “extraordinary or unexpected revenue increases.” Wisconsin has a statute to do just that, and in 2013 and 2014 the state made some progress in increasing the budget stabilization fund. However, the last tax cut bill overrode that statute, which requires that when tax collections increase faster than previously expected, half of the increase shall be deposited into the Rainy Day Fund. (Read more here about adequate state reserves.) Thanks in part to that decision, Wisconsin is entering the next biennium with a huge gap between projected revenue and spending needs.
It will be difficult to increase the state’s budget reserves at a time when agency budget requests exceed anticipated revenue by $2.2 billion, but a good start would be for state lawmakers to stop postponing the required increase in the minimum budget balance.