After years of unprecedented budget surpluses, Wisconsin’s bright financial outlook now has the potential to shift and perhaps even fall into shadow. During the COVID-19 pandemic, rapid inflation and massive federal pandemic aid boosted state tax collections even as the state kept relatively tight control on spending, building up historic surpluses and reserves. Today, however, the state’s main fund is spending more than it is taking in and those reserves are shrinking. By June 30, Wisconsin’s general fund is expected to close its fiscal year with a balance of $4.27 billion – a massive sum to be sure but one that is down $2.8 billion from just two years before.
The last several years have represented a reprieve from the scarcity mindset that prevailed in state budgeting over much of the past quarter century, but that could change over the next two years. For now, Gov. Tony Evers is proposing that the state use its ample reserves to increase spending by billions of dollars on education at every level – from early childhood to the state’s public universities – as well as transportation, aid to local governments, and state credits to lower property taxes. Despite a strong economy and a proposed net increase of more than $2 billion in general fund taxes, under the bill the state’s general fund balance would fall to less than $700 million by June 2027, leaving a potential shortfall in the next budget despite low unemployment and for now at least a relatively favorable economy.
For their part, Republican lawmakers have pledged to reject many of these new spending and taxing provisions, but have put forward their own income tax proposals in the previous session that would have also depleted the state budget and left the state with a potential gap in the following two years. To be sure, some further use of the state’s massive surplus is expected and welcome given the state’s many challenges. But taxpayers have good reason to watch both sides in this process carefully to ensure the final budget does not erode too many of the state’s hard-won financial gains.
As we have done every two years, we seek in this brief to describe the broad sweep and major initiatives of the governor’s proposal. We focus largely on the provisions that appear to have the greatest chance of passage and on the fundamentals of the budget – from the size of state reserves to the changes in federal funding happening in Washington, D.C. – that state officials will have to grapple with in the coming months regardless of their political party and ideological views. Though we cannot review every provision in the bill, we plan to examine additional elements in the weeks ahead as well as the broad contours of the final legislation.
As we have written, the state’s massive surplus is a “golden opportunity” that, once expended, may not come again in the lifetimes of our readers. Every resident of Wisconsin has a stake in how the state uses it. Our goal with this brief is to help readers better understand the state budget and make up their own minds about the decisions it entails. In doing so, we hope to promote an informed discussion about our state’s priorities at this critical juncture. Continue reading…