The Very Bad Fiscal News for this Year Offsets Improved Revenue Estimates for the Next Biennium

New budget figures from the Wisconsin Legislative Fiscal Bureau (LFB) indicate that Wisconsin is on track to have a $283 million deficit at the end of the fiscal year. That hole is $153 million deeper than what the Department of Administration (DOA) had indicated in November.

Of course, the Fiscal Bureau isn’t predicting that the state will actually finish the fiscal year with a substantial deficit; they are sizing up the amount of red ink that Governor Scott Walker’s administration and state legislators have to eliminate in order to meet the constitutional requirement to have a balanced budget.

On many occasions in 2014, we expressed concerns that state lawmakers were going to have to make painful budget cuts before the end of fiscal year 2014-15 because the tax cuts enacted early last year were based on overly optimistic revenue estimates and because the state was planning to draw down almost all of the anticipated balance. Unfortunately, our fears have proven to be correct, and substantial cuts are now needed to get the budget for this fiscal year out of the red.

Over the last two months, the Wisconsin Department of Revenue (DOR) suggested that revenue estimates for the current fiscal year were looking up and would help close the deficit projected in November. Based on those assurances, I was a little more optimistic in a blog post I wrote just a few days ago. However, the new figures from the nonpartisan Fiscal Bureau show slower rather than faster revenue growth, with the projected tax revenue for this fiscal year dropping by $173.5 million relative to the estimates in the November 20th report from DOA. (A DOR letter sent today to the DOA Secretary projects somewhat higher revenue collections this year than the new LFB estimate, but less than what DOR was suggesting earlier this week, when the department continued to indicate that 2014-15 revenue would exceed the November estimate.)

Not all of the fiscal news in the new LFB document is bad. Compared to the DOA numbers released in November, the LFB projects almost $111 million more tax revenue in 2015-16 than DOA had estimated, and nearly $66 million more in 2016-17. Although that positive news for the 2015-17 biennium offsets the very worrisome increase in the deficit for the current fiscal year, it’s very disappointing that the latest changes in projections for fiscal years 2015 through 2017 are essentially a wash. The cumulative shortfall is essentially the same as it appeared to be two months ago, when the DOA figures showed a $2.2 billion gap between projected revenue and the agency budget requests for 2015-17 (on top of a $183 million shortfall in 2014-15).

Circling back to the $283 million deficit now anticipated by the LFB for the end of this fiscal year, a couple of technical points should be kept in mind. First, that figure assumes that the state will completely eliminate the $65 million reserve lawmakers are supposed to maintain at the end of each fiscal year. Rebuilding that minimum reserve means the “net balance” is -$348 million. On the other hand, those figures don’t include tribal gaming revenues that the Forest County Potawatomi withheld while the Governor was considering a Kenosha casino proposed by the Menominee. Now that the Kenosha casino has been rejected, the Governor expects the Potawatomi to make those payments, which would lessen this year’s shortfall.

The bottom line is that Wisconsin lawmakers have to find ways to close a total budget shortfall of roughly $2.3 billion between now and the end of the 2015-17 biennium. Granted, not all of the agency requests have to be approved, but it’s a mistake to think that all of the proposed increases in spending can be dismissed without any pain. Many of the requested increases are needed to maintain entitlement programs, such as Medicaid, and others are needed simply to adjust costs for inflation.

The next five months are going to be very difficult for Wisconsin lawmakers who don’t relish making substantial budget cuts.

From www.wisconsinbudgetproject.org.