Gov. Tony Evers and lawmakers negotiated a wide-ranging budget deal on key issues including income tax cuts and funding for K-12, child care, transportation, corrections, the Universities of Wisconsin, and payments to hospitals. Though the budget addresses many top issues, it also leaves unanswered questions such as funding for juvenile corrections, the timeline for closing an aging adult prison, and potential K-12 property tax increases.

Gov. Tony Evers and lawmakers struck a deal this month to deliver an “all of the above” budget that cuts income taxes and increases both spending and borrowing. In the process, the 2025-27 budget will deliver progress on a number of key priorities but also draw down most of the state’s more than $4 billion surplus and leave a more challenging path for the state to balance its budget two years from now.

The plan passed by the Joint Finance Committee will increase budgeted spending of all funding types by 12.4% over two years, an increase of $12.3 billion to $111.1 billion, according to the Legislative Fiscal Bureau (the LFB is the source of most figures in this brief). The 2025-27 budget will increase appropriations of state tax dollars (or general fund revenue) by 7.7%, or $3.3 billion, to $46 billion. These substantial changes will increase state spending on aid for special education students, child care, local roads, and reimbursements to hospitals serving low-income patients.

The budget will modestly decrease the number of state positions but also provide for rising benefit costs and base wage increases of 3% in July 2025 and 2% in July 2026 for all state workers. That will cost an additional $385.7 million of general tax revenue over the two-year period along with $242.0 million more in other funds.

In addition, the legislation also cuts state income and sales taxes by an estimated $1.5 billion over two years. Lawmakers and Evers did raise title fees on vehicles and a state tax on hospitals that draws down additional federal funding for health care. Yet overall, the budget makes substantial new commitments without bringing in enough revenues to cover them. That will reduce the state’s financial cushion and leave Wisconsin with less of a margin for error moving forward.

In this brief, we follow up on our March analysis of the governor’s proposed budget by looking largely at the version of the legislation that was passed out of the Joint Finance Committee along with some changes made by floor amendments and a few of the governor’s most important partial vetoes. Because of those late changes, the final numbers for the overall budget may change slightly from those we present.

State Budget passes largely on time despite partisan divisions

The 2025-27 budget runs from July 1, 2025 to June 30, 2027 and is the fourth in a row that has been approved during a time of divided state government, with Republicans controlling both legislative houses and Democrat Tony Evers serving as governor.

During Evers’ two terms in office, speculation has frequently arisen that he and GOP lawmakers might end up approving a state budget months late or even fail to do so at all. In fact, each of the four budgets was approved within days of the official start date of July 1 of each odd-numbered year. This year, the budget was signed by Evers on July 3 and published that same day – a date that is effectively on time and has no impact on state operations (see Figure 1).

Recent budgets were late much more frequently during the 1990s and 2000s, when government was generally divided but partisanship was seen as less sharp than it is now. Budgets in 1999 and 2007 were months late and did not pass until late October, a time of increasing pressure on state officials to pass a budget so that local officials receive the information they need to approve their own budgets and tax levies for December bills. The passage of this latest budget shows that, despite recent concerns, state leaders can still overcome partisanship to reach compromises on at least some major issues.

Budget could add to fiscal challenges in the future

Bipartisanship can still come with tradeoffs, however. In the state budget, lawmakers and Evers included both the tax cuts sought by Republicans and a sizable portion of the spending sought by the governor. The result is a budget that spends down state reserves by more than $3.6 billion.

As Figure 2 shows, the state’s general fund balance is projected to fall from $4.41 billion on July 1 of this year to $770.5 million on June 30, 2027. That would be the lowest year-end balance in the state’s main fund since 2018.

The state would still retain an additional $2 billion balance in its rainy day fund, which would bring its total estimated reserves two years from now to roughly $2.8 billion. That total would amount to 11.4% of net general fund appropriations in fiscal year 2027 (the twelve months ending on June 30, 2027). That would be more than in any year prior to the pandemic.

That relatively strong balance could be needed, since moving forward the state could face a return to budget challenges. The state’s reserves are projected to drop for the next two years because state spending will outpace revenues in both years of the 2025-27 budget (see Figure 3).

In the second year of this budget, the plan calls for the state’s general fund to spend nearly $24.4 billion. However, the state only expects to take in roughly $23.1 billion in general purpose revenue (or GPR) in fiscal year 2027. The state can use its reserves to cover the $1.2 billion in additional spending, but the projected gap for 2027 would be one of the largest of the past generation (Figure 3).

As a result, the 2027-29 budget will start with a sizable potential shortfall to solve. Potential growth in state tax revenues is unlikely to resolve more than part of that shortfall, since some of the increase will likely be used to offset the growing costs of existing state programs. To fully close the gap, state officials will likely have to turn to measures such as spending cuts, tax increases, or further drawdowns of reserves including potentially part of the rainy day fund.

income tax cuts coming

The budget compromise includes two major cuts to the Wisconsin income tax that together will total more than $1 billion over the next two years.

The first of these provisions is a change to Wisconsin’s progressive tax system in which filers with greater taxable income have higher tax rates applied to a portion of that income. This change would enlarge the state’s second tax bracket and shrink the state’s enormous third bracket, so more taxable income would be subject to the lower marginal rate of 4.4% (see Table 1). Under current law, the third bracket covers taxable income for 2025 for married couples filing jointly from $39,150 to $431,060 – a huge range that resulted from a previous merger of two former brackets into one.

Beginning in tax year 2025 on the returns filed in the spring of next year, this action would lower average income tax rates for any single filer with taxable income of more than $29,370 and any married couple filing jointly with taxable income of more than $39,150. Filers with taxable income of less than those thresholds would not benefit from the proposed change.

The maximum benefit of the change works out to $190 for single and head of household filers and $253 for married couples. To get that full benefit, filers would need to have taxable income of at least $50,480 for single filers and $67,300 for married couples filing jointly. Filers with greater taxable income than those levels would not receive any additional benefit.

In other words, this change delivers a savings of a similar dollar amount to both middle and high-income taxpayers but would not provide any savings to low-income state residents who owe little to no income taxes. The provision will lower state tax collections by about $320 million in each year of the two-year state budget. Figure 4 shows how the benefits of the tax cut will be distributed among taxpayers of different incomes along with the average tax cut for filers in each income group. At an average of $188 per filer, this cut represents a relatively small amount, but could impact more than 1.5 million tax returns, or about half of the total filed each year.

The second major income tax cut shelters a portion of retirement income from state taxes. Starting in tax year 2025, the provision would exclude the first $24,000 of retirement income from state tax for single filers if an individual reaches 67 years of age by December 31 of this year. The change exempts $48,000 in retirement income for married couples filing jointly if both spouses reach 67 at some point in the tax year in question.

Under the change, retirement income would include payments and distributions from a qualified retirement plan recognized by the federal tax code and individual retirement accounts. Filers must be state residents to claim the exclusion, and it only applies to income from Wisconsin. Filers using this exclusion cannot claim any other state tax credits in that year. The change will reduce state tax collections by $395 million in state fiscal year 2026 as many taxpayers make a one-time adjustment in their estimated payments, and then by $300 million in fiscal 2027.

There are currently just over 577,000 tax filers who are Wisconsin residents and have at least one person on their return who is at least 67 years old, according to the Legislative Fiscal Bureau. Just over half of them – 53.2% – owe at least some income tax currently. Some of these filings come from a married couple in which one of the spouses is 67 or older and one is not. State officials expect that about 278,000 filers would qualify for this tax reduction.

This proposal expands Wisconsin’s existing policy of not taxing Social Security income and also makes Wisconsin more like its neighbors Iowa and Illinois, which do not tax retirement income.

On the one hand, this provision will likely be popular among retirees – a large and growing group – and may blunt the loss of seniors to some other states such as Florida with warmer weather and no state income tax. On the other hand, this proposal may not deliver the same increase in economic growth as some other tax cuts. By reducing taxes on withdrawals from retirement funds, this proposal will help retirees stretch their savings further and presumably do more to incentivize retirements than additional labors (though the requirement to be 67 will at least minimize early retirements).

The largest portion of the tax cut – $104.0 million – would go to filers with adjusted gross income of between $100,000 and $150,000, and nearly 70% of the total cut would go to those with adjusted gross incomes over $100,000. While this may be somewhat surprising, it’s important to remember that only people who currently have net income tax liability see a benefit from this cut. Low-income filers may already claim tax credits such as the Homestead Tax Credit, which may eliminate their existing tax liability under current law.

The governor had proposed his own tax decreases, including expanding the personal exemption for income tax purposes and the Homestead and Earned Income tax credits. As we noted in our March brief on his budget proposal, Evers’ plan would have raised taxes on upper-income earners in several ways and done so by a much larger amount than the decreases. Overall, his proposed budget would have raised general fund taxes by $2.4 billion. Republicans ultimately nixed Evers’ plan.

Most of the budget’s tax cuts focused on lowering income taxes, but the budget also includes a targeted reduction for sales taxes paid on electricity and gas bills. Currently, these bills are not subject to sales taxes during the winter months, but between May and October, the state’s 5% sales tax applies. The governor proposed applying the existing exemption to the entire year, and the Legislature approved the exemption, reducing state tax revenue by an estimated $178.7 million over the two-year period plus additional cuts in revenue from the 0.5% county sales tax in most communities.

Budget prioritizes special ed but could affect tax bills

This budget also marks a significant shift in how the state allocates new funding to schools among the three largest types of state aid. The legislation freezes general aid and per pupil aid to K-12 districts and instead pours nearly all increases into state aid for special education.

As Figure 5 shows, over the past two decades the state has mainly funneled additional funding for schools into general school aids, which are distributed based on enrollment, spending, and property values, with the formula favoring districts with lower values. This current budget provides no new funding for general school aids.

During Gov. Scott Walker’s tenure and into the first Evers budget, lawmakers and the governor also put state funding into a new form of aid that was distributed on a flat per pupil basis. Within the state’s overall system, this approach blunted the priority for districts with lower property values. The aid has remained at $742 per pupil since 2020, with total aid amounts falling slightly as overall statewide enrollment drops.

The state has increased special education aid over time, particularly in recent years. Payments to schools doubled between 2000 and 2025, outpacing the rate of inflation. During those years, however, the costs for schools to educate students with special needs were growing even more rapidly. That meant that the state aid was covering a diminishing share of the special education costs that were eligible for state reimbursement. The rising share of unreimbursed costs forced schools to pay for them by diverting funds that otherwise would have gone toward general instruction to students.

The share of eligible special education costs being reimbursed by the state dropped to as low as 25% in 2020, down from 44% in 1995. Though this trend affected all schools, it imposed a larger burden on districts such as the Milwaukee Public Schools with a greater than average share of students with disabilities.

Responding to calls for change from school leaders, legislators and Evers increased state funding for special education by $504.7 million over the two-year budget, raising the projected reimbursement rate to 42% in 2026 and 45% in 2027 (see Figure 6). They also approved an additional $54.6 million over two years for another form of aid for special education students with particularly high costs.

As Figure 5 shows, making a large investment in special education while freezing general aids was an unprecedented step for the state. It leaves school boards around Wisconsin with both an opportunity and a difficult choice in the months ahead because of the way these two forms of aid work with state revenue limits on districts.

Revenue limits cap the amount of funds per pupil that districts can raise from local property taxes and state general school aids combined. These limits were frozen for two years during the 2021-23 budget and lagged well behind the rapid rate of inflation at that time, stressing districts’ finances and incentivizing many to turn to temporary federal pandemic aid to help fund their ongoing operations.

A partial veto by Evers in 2023 has locked into state law an annual increase of $325 per pupil in the revenue limit, including for both the 2025-26 and 2026-27 school years. The $325 increases will open up roughly $760 million in additional revenue authority for local districts across Wisconsin over the next two years.

The increase in special education aid helps district budgets but does not count toward the revenue limit. Therefore, the decision by state officials to leave general school aids untouched means local school boards could choose to raise their levies by the full possible amount including any referenda approved locally by voters. These officials will have to choose between locking in an increase in revenue that they have been seeking in recent years and shielding local property taxpayers.

This decision comes as U.S. Census Bureau data show that Wisconsin’s national rankings in both K-12 spending per pupil and the overall state and local tax burden have fallen substantially. How school boards react to this difficult choice will have some impact going forward on both priorities in Wisconsin – the tax burden and a quality education.

Last, the budget also includes increases for state per pupil payments to independent charter schools and private voucher schools by $640 in year one and $428 in year two. Under state law, state payments to these schools are increased to reflect the per pupil annual bumps in the revenue limit for traditional public school districts and special education and other aid outside the limit.

Some Funds Set Aside for Child Care

Child care was a major point of contention during budget negotiations, and the compromise package with lawmakers includes some new funding. The biggest single-year allocation is $110 million in federal funds that will be paid directly to child care providers in fiscal year 2026 only. These funds come from interest the state earned on large federal pandemic aid balances in past years, and the payments are intended to ease the transition away from the expiring Child Care Counts program.

Wisconsin established Child Care Counts during the pandemic with the goal of expanding families’ access to affordable care, increasing child care workers’ pay, and improving the quality of care. The program provided $650 million in federal COVID-19 funding to child care centers through January 2024; the governor used additional federal emergency funding to extend funds through June 2025. Now, so-called “Child Care Bridge Payments” will extend payments to providers for one more year but at smaller amounts and without resolving the ongoing structural issues facing the industry and the families who use it.

In addition, low-income families participating in the Wisconsin Shares subsidy program should receive greater access to affordable care. The budget allocates $123.2 million over two years to increase reimbursement rates for families receiving the subsidy such that at least 75% of regulated child care slots can be completely covered by the maximum reimbursement rate, as required by law.

The budget will also continue to waive child care copayments for Wisconsin Shares families earning incomes at or below the federal poverty level at a cost of $4.4 million. Federal funding will support these provisions, as is the case for most state spending on child care in Wisconsin.

However, a new program designed to better prepare children for elementary school will be funded with about $66 million in state tax funding, or GPR. The Get Kids Ready initiative will pay child care providers to equip four-year-old children with skills for entering kindergarten. While it is too early to call this a true shift toward the state claiming more responsibility for child care funding, it may represent a step in that direction. It also may help to shrink disparities in K-12 schools that can open up between children before they even arrive. Finally, the program would not remove four-year-old children from child care centers, which may help protect providers who rely on four-year-old enrollment to help subsidize the care of infants.

The budget compromise also includes several controversial regulatory changes that aim to ease staffing shortages by loosening current care standards rather than seeking to boost training, pay, or benefits for child care workers. First, the new budget lowers the minimum age for early childhood assistant teachers from 18 (or, in certain cases, 17) to 16 years old, although it retains 18 as the minimum age for limited sole supervision of children. Training requirements remain the same, but 16- and 17-year-olds may now fulfill them within six months of starting the position – mirroring the standard for adults – instead of before assuming the position.

Second, a new two-year pilot program will allow the state to experiment with expanding staffing ratios such that each child care worker can be responsible for more children at a time. Under current regulations, group child care centers must maintain a minimum ratio of one child care worker to four children up to 24 months old, and then a ratio of one worker to six children up to 30 months old. Centers participating in the pilot will only need to maintain the one-to-four ratio for children up to 18 months old, and then can go up to a one-to-seven ratio for children from 18 months to 30 months old. The pilot will be funded with $28.5 million in federal dollars and includes bonus payments to participating providers based on their infants and toddlers served through the Wisconsin Shares subsidy program.

Finally, family providers may now be licensed to serve up to 12 children, above the previously allowable maximum of eight, as long as space and staffing requirements are still fulfilled.

While these changes may help providers staff their classrooms and lower costs, some advocates say they could affect the quality of care provided. The pilot program’s staffing ratios will be somewhat out of line with recommendations promulgated by the National Association for the Education of Young Children and the U.S. Department of Health and Human Services but still well within the range of ratios required by our neighboring states.

Among our neighbors, Michigan holds the most stringent standards, with a one-to-four ratio required for children up to 30 months. Illinois and Minnesota, on the other hand, only require the one-to-four ratio in group child care settings for children up to 15 and 16 months, respectively.

Similarly, minimum requirements for assistant child care teachers vary nationally. North and South Dakota are outliers in allowing assistant teachers to be as young as 14; elsewhere, states are more likely to set 16 or 18 as the minimum age, with some states attaching more rigorous education qualifications as well. Ultimately, states must strike a balance between alleviating workforce challenges and ensuring children’s safety and quality of education.

Higher Ed Funding Would Grow

After some discussion of cutting funding for the Universities of Wisconsin despite the state surplus, the budget compromise provides an increase in state funding that comes at a time when there are federal funding cuts for the UW. The state funds will not be enough, however, to prevent most campuses from increasing tuition by 5% for next year to cover the growing costs of university operations.

Under the Joint Finance version of the budget, GPR funding for what is also known as the University of Wisconsin-System will rise by $88.5 million over the two years. However, the UW’s funding once debt payments are excluded will rise by $161.7 million.

A sizable portion of the new funds are set aside for specific purposes and will require further legislative approval. The total includes $54 million in additional funding to attract and retain key faculty positions. These new funds can only be used through approval by a legislative committee. The total cost above does not include the base wage increases going to UW and all other state employees, since those are accounted for in a different part of the state budget. It also does not include funding for UW buildings in the capital budget.

The budget also dedicates $30.5 million to campuses with declining enrollment, and the remaining $22.5 million to university campuses based on the number of credits awarded each year. While the final budget did include these funds, they are subject to release by the Joint Committee on Finance. Last, the budget imposes teaching load requirements on UW professors.

GPR funding for the Wisconsin Technical College System would increase by $13.3 million over the two years, or about 1%. Those funds include increases in general state aid, funding for incorporating artificial intelligence in technical college programs, and support for the creation of textbooks and other teaching materials in the public domain.

The budget also would provide a nearly $22 million increase in overall funding for the Wisconsin Grants, the main form of state financial aid. These grants are awarded based on financial need to Wisconsin undergraduates attending at least half-time at UW campuses, technical colleges, tribal colleges, and private nonprofit colleges and universities. This is notable, given that previous WPF research has identified lagging state financial aid as a concern for both college students and the labor force at large.

Hospital payments would rise

Once again, GOP lawmakers rejected an Evers budget proposal to expand Medicaid health coverage for low-income state residents using funding available through the federal Affordable Care Act. However, the governor and legislators reached a compromise to draw down additional federal funds and increase payments to hospitals, racing to approve the plan ahead of a change to federal law that would have blocked Wisconsin from doing so.

The budget deal increases a state tax on hospitals’ gross patient revenues that is paired with federal matching funds to increase state payments to hospitals serving Medicaid patients and to a lesser extent offset the state’s costs for the program.

The plan increases the tax from $419.3 million a year under current law to an estimated $1.51 billion, according to LFB. This $1.1 billion in additional state tax revenue will be used in turn to draw down federal funds and increase payments to hospitals by a total of just over $2 billion, leaving the state’s hospitals as a group with a net increase of $918.8 million in funding annually after accounting for the taxes. About $298 million per year will be left over and used to offset ongoing Medicaid costs, making this move a major revenue increase for the state.

Questions linger for state corrections system

Within the state prison system, the budget takes steps toward longstanding goals of shutting down a juvenile facility north of Wausau and closing the more than century-old adult prison in Green Bay. However, questions remain about the timeline for this massive shift.

GPR funding for the state’s correctional facilities is slated to grow by $397.4 million over the two-year budget passed by lawmakers to $3.5 billion, covering costs associated with overtime, increasing costs of housing inmates, and growing prison populations. The agency’s total position count would grow by 165.7 full-time equivalent positions, including 147.1 juvenile corrections positions.

Our March brief on the governor’s proposed budget detailed his roughly $500 million plan for opening a secure facility for juveniles in Dane County and restructuring adult prisons to allow for closing Green Bay Correctional Institution without building a maximum-security facility. Instead, the Legislature removed from the capital budget all but $15 million of the funding proposed by Evers for adult institutions within his multi-step plan for carrying out a series of capital projects at six adult facilities and then moving Green Bay inmates to new locations. The budget also provides $56.5 million for upgrades to heating plants across the prison system.

For his part, the governor vetoed the deadline of 2029 in the budget for closing the prison in Green Bay, citing the lack of a detailed plan or resources to get the job done. The funds in the budget will help the state plan for the closure, but state leaders will have a lot of work ahead to realign Wisconsin’s adult facilities.

The final legislation does include $130.7 million to build the juvenile detention center in Dane County, which was in the Evers plan to help facilitate the closure of Lincoln Hills School for boys and Copper Lake School for girls in Irma by providing a new space to house up to 32 male and eight female residents. In addition, the positions created for juvenile corrections were for a separate juvenile corrections facility in Milwaukee that is expected to open in 2026.

A second partial veto by the governor will provide huge savings in the rates that counties pay to house certain juveniles in state facilities such as Lincoln Hills, but also raises questions about how these facilities will cover their annual budgets. Last year, counties paid a rate of $1,268 per day, or $462,800 for the 2025 fiscal year, to house juveniles in Lincoln Hills. The package passed by lawmakers would have raised that rate to $2,501 in 2026 and $2,738 in 2027.

However, Evers used his partial veto power to cross out the “2” and sharply reduce the daily rates to $501 in 2026 and $738 in 2027. Under the Legislature’s plan, the cost to counties of housing juvenile offenders would have increased by more than $30 million in each year and would have covered the full juvenile corrections cost of $71.2 million in 2026 and $73.5 million in 2027. However, the partial veto reduced the expected revenues from daily rate charges to only $14.3 million in 2026 and $20.2 million in 2027.

Milwaukee County sends the most juveniles to state facilities and will benefit the most from the veto. Assuming that the county will pay for roughly 20 juveniles in state custody, Milwaukee County would potentially save more than $9 million in costs over the next two years compared to the 2025 rates and far more compared to the rates as approved by lawmakers.

Evers had proposed that the state provide some tax funding to reduce the rates for counties, and his veto will now require the department to find funding from another source. In previous years, Corrections officials have used unallocated funding from other sources, but those amounts have been substantially less than the potential $50 million shortfall facing youth detention under the adjusted daily rates. That leaves an open question about whether lawmakers and Evers will need to pass legislation to prevent a shortfall.

Income, Sales taxes again fund roads

As in the previous budget, the 2025-27 final budget will draw on nearly $1 billion in general fund revenues such as income and sales tax collections to fund transportation spending. Similar to two years ago, the bulk of this support comes in the form of a $580 million one-time transfer.

However, the final compromise generates a total of $188.2 million in new transportation revenues over the next two years, with most of that coming from an increased fee for transferring the title of a vehicle. The increases represent a step towards providing sustainable support for the state’s transportation system. However, recent Forum research suggests the need for a greater long-term source of transportation funding, either through increased user fees or permanent use of the state’s general fund revenue.

Figure 7 shows how revenues have flowed between the general fund and transportation fund over the last 12 two-year budgets. In the first three of those budgets, the general fund benefited from transfers from the transportation fund. After that, the flow of funds reversed. By the end of June 2027, a net of more than $3.0 billion of general tax revenue will have been spent on roads and other transportation infrastructure. The state’s general fund also now pays for transit operating aids, totaling $232.3 million over the two-year budget.

Our previous research has shown that Wisconsin has typically relied more heavily on dedicated revenue for transportation than other states. Shifting toward general fund sources such as income and sales tax revenues does help hold down the state’s gas tax and vehicle registration fees. Over the past two decades, elected leaders have been reluctant to raise those transportation revenues despite lackluster growth in them. However, this approach does put the transportation system into direct competition with other state priorities such as K-12 schools and higher education, Medicaid health coverage, prisons, and state credits to lower local property taxes.

Over $1.1 billion in general fund support over the last two budget cycles has been structured as one-time transfers, which takes advantage of the state’s large general fund balance and avoids borrowing and tax increases. However, that large balance is unlikely to be available the next time state leaders craft a state budget. Gas tax and vehicle fee revenue will continue to grow slowly, so without rate increases for those sources, or the creation of new sources such as toll roads, the budget deliberations will likely require a choice between a substantial reduction in transportation spending, increased borrowing, or general fund transfers financed through separate spending cuts or tax increases.

The budget continues funding for local upgrades with $100 million for the state’s Local Road Improvement Program that funds local projects costing more than $250,000, or more than $100,000 for town governments. From this funding, counties will receive $35.6 million, cities and villages $25.4 million, and towns $39.0 million. The budget also repeats the $150 million investment for agricultural roads, which consist mainly of rural town roads with a small number of village roads and county highways.

Each of the last four state budgets have included one-time supplemental funds for capital improvements to local roads. This trend suggests the state transportation fund may now be permanently responsible for a greater share of capital improvements to local roads, especially in rural areas.

The budget also increases general transportation aids to both counties and municipalities by 3% in each year. The payment rate to less populated communities such as towns will see an increase of 7.2% in the first year of the budget, followed by a 3.0% increase in the second year, as the budget raises their rates by a greater amount. These aids pay for some of the costs associated with road maintenance and construction, plus related costs such as sewers, lighting, and law enforcement.

Milwaukee County also receives a large increase in state aid for patrolling the interstates within its territory, a change discussed more thoroughly in the next section.

Some new state aid for cities, towns

The 2025-27 budget builds on the historic changes in local aids and revenue options made in the previous legislative session. In addition to the funds for highway patrols in Milwaukee County and local roads, the plan increases funding for services to state buildings. The legislation also slashes costs paid by counties for juveniles in state correctional facilities and allows mid-size communities to consider levying a sales tax.

In addition, County and Municipal Aid, the state’s most prominent form of local aid, is budgeted to grow by $23.6 million, or 2.3%, in 2026, and an additional $35.8 million, or 3.5%, in 2027. This growth comes as a result of 2023 Wisconsin Act 12, which tied the annual increase in this once lagging form of aid to the growth in state sales taxes.

Another notable change is the increase in payments to local governments for serving state buildings in their communities. These government buildings are not subject to property taxes, but still need water, police, fire, and other services. The budget increases these payments by $7.0 million in each year, bringing the annual total to $25.6 million. Nearly $3.0 million will go to the city of Madison, which has the most state facilities. This is noteworthy because while many communities saw major bumps in state aid in 2024, Madison received the third-lowest per capita increase among all municipalities in the state.

In addition to local road funding, aid for policing expressways in Milwaukee County will jump from just over $1 million in 2025 to more than $19 million in 2026 and $21 million in 2027. These payments help cover the county’s cost of patrolling the interstate system in Milwaukee County.

In every other county, the Wisconsin State Patrol enforces traffic laws on the interstate and state highways. In Milwaukee County, however, the Sheriff’s Office takes on this responsibility, and county officials estimate that these patrols will cost approximately $16 million in 2025, and grow to over $17 million in 2026.

Since 2000, annual state payments to defray the costs of patrolling the freeway have remained at approximately $1.0 million, far below the costs of providing the service. The county covers the remaining costs of these operations through its general tax revenue and other state aid. The increase will cover the county’s entire cost of expressway traffic enforcement. That will free up resources for other county priorities, including road maintenance and capital costs associated with a new public safety building.

Another change that will impact some county budgets is a $12 million increase in funding for county conservationists. These positions responsible for implementing state required soil conservation and other agricultural practices are paid for with state funds and local tax dollars.

One change that has gone largely unnoticed by the public is the expansion of the state’s premier resort area sales tax. This tax applies to specific goods and services related to the tourism industry and was limited to communities that had more than 40% of their property value dedicated to tourism retailers.

The budget removes the property value requirement for communities with populations between 4,000 and 11,000. In theory, this would open up the tax to more than 130 municipalities that are home to more than 700,000 people. However, the budget would only allow municipalities to impose this tax if voters had approved it in a referendum prior to June 1 of this year – a criteria met by only a few communities such as the city of Sturgeon Bay and the town of Minocqua. The municipality must reduce its property tax levy by half of the amount raised by the new tax, but the remainder of the proceeds could be used for other priorities such as public safety.

Other Local Assistance

The legislation also delivers aid to local communities in several other areas:

Emergency Communications

The budget provides nearly $80 million in funding to replace the state’s aging public safety communications network that allows first responders such as firefighters, police, and emergency medical personnel from different agencies to seamlessly communicate with each other. These so-called “interoperable” systems are needed when multiple agencies respond to natural disasters or other large-scale events.

The budget also provides $10 million for grants to local first responder agencies for equipment upgrades to access the system.

Talent Recruitment

The budget creates a grant fund for talent recruitment in the state. The fund will provide incentives to households consisting of at least two members with income over $55,000 annually to move to Wisconsin.

This new $5 million appropriation at the Wisconsin Economic Development Corporation would support talent recruitment grants to local or tribal governments, or nonprofits. Grant recipients must provide a 20% match, and grants are limited to $500,000 per municipality per year.

New Assistant District Attorneys

The Legislature added 54.5 assistant district attorney positions across the state, with Milwaukee County (12.5), Brown County (7.0), and Waukesha County (6.0) leading the way.

These positions are funded through either general tax revenue, or in the case of Milwaukee County, fines associated with traffic violations. The new slots are intended to address workloads for prosecutors so they can complete their work within a 40-hour work week.

Capital budget

Evers proposed a capital budget of $3.9 billion in spending on buildings and other projects. The Legislature reduced the amount to $2.5 billion, but that will still just exceed the previous two-year budget and count as one of the state’s largest capital budgets in at least a generation (see Figure 8).

Much of the funding – $1.8 billion – comes from newly authorized state general obligation bonds, which are debt backed by the state’s full taxing authority. The remaining funds will come from existing borrowing authority, cash, and federal and other funds. Though the capital budget will use $326.5 million in state tax funds, it still breaks from the $1.1 billion in cash used in the previous budget to fund projects while avoiding borrowing.

The largest single capital investment goes to projects within the UW System, which will receive more than $1.1 billion, down from the $1.6 billion proposed by the governor.

Some notable UW projects that received funding:

• $244.6 million for minor facilities improvements across all campuses
• $194.5 million to complete the Prairie Springs Science Center at UW-La Crosse
• $189.3 million for the Health Sciences Renovation at UW-Milwaukee to expand teaching capacity
• $163.2 million for the Science Hall Renovation at UW-Madison
• $137.6 million for the Polk Learning Commons Addition and Renovation at UW-Oshkosh
• $98.1 million for the Sentry Hall Addition and Renovation at UW-Stevens Point

The budget also includes funding for the state prison projects mentioned earlier in this brief. One smaller but notable provision is the creation of a $50 million grant program for non-state building projects that will be funded with the interest earned by the state on federal pandemic aid. The participating organization must provide a 50% or greater match to be eligible for funds, and construction plans require review from the Department of Administration.

The Legislature also eliminated the governor’s proposed reauthorization of the Knowles-Nelson Stewardship fund, a program to finance projects on public lands and purchase and set aside land for public conservation and recreation. The governor’s proposal included $1 billion over the next 10 years.

The Legislature did include a number of specific projects to be funded through the state’s conservation fund, but the governor vetoed some of them. There is a bill under consideration in the state Legislature to renew the program, though it has not made significant progress towards passage as of July 2025.

Conclusion

Budgets must always balance the competing goals of addressing the needs of the present with preparing for the unexpected events of the future. The state’s 2025-27 fiscal plan puts its emphasis on the here and now, borrowing for major capital projects and spending down most of the state’s once-in-a-generation surplus to provide income tax cuts, special education aid to schools, transportation spending, and some support for child care and the UW.

For their part, state officials can still point to the state’s large rainy day fund balance and tout overall state reserves that remain much larger than they were at any point in the two decades leading up to the pandemic. Those funds will provide at least some protection for the state against economic downturns and other unforeseen shocks.

The Legislature and governor can also note the very real political pressures they face. Many education advocates, for example, remain unsatisfied by the funding in the budget. They cite the state’s falling national ranking for K-12 spending per pupil and the lack of any increase in state general school aid as a factor that will drive up local property taxes.

On the other hand, the state is now budgeting to spend much more than it expects to receive in revenues over the next two years, and this imbalance is greater than at almost any point over the past two decades. That will magnify the challenges in the next state budget, particularly if the economy falters or if cuts to federal funding heighten the strain on state finances.

For both policymakers and the public, it will be important to monitor developments in the national and global economy over the next year to assess whether they call for tempering expectations for future budgets or even, in a more extreme case, curbing the more aggressive elements of this plan. For now, we hope this brief will help state officials and ordinary residents as they try to make sense of this far-reaching piece of legislation at a critical moment in Wisconsin history.