Fiscal Bureau Memo: Current Budget Deficit Grows to $283 Million

Shortfall May Mean Cuts in Upcoming State Budget

MacIver News Service | January 23, 2015

[Madison, Wisc…] New state revenue estimates from the Legislative Fiscal Bureau (LFB) were released Friday predicting Wisconsin’s general fund tax collections will increase 4.7 percent in 2016 and 3.8 percent in 2017 as the national economy picks up steam.

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The projected revenue increase by the end of the current fiscal year (FY15) is 3.7 percent over last year’s totals. The LFB memo included a summary of the national economic landscape in 2014 and a forecast into the next three years.

Jobs and consumer spending in the U.S. increased at the highest rates since before the recession in 2014, but the labor participation rate hit its lowest point in decades at 61.4 percent.

The memo also detailed re-estimates of up-to-date revenue collections for the current fiscal year (FY2015). New projections continued to show the effects of withholding changes for state tax revenue. The general fund will be $283 million short by the end of FY15, according to the memo. That amount represents a drop of $151 million from a December LFB report that estimated the general fund would be $132 million short.

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Reasons for lower estimates include lower tax revenue than expected and an estimated decrease in appropriations, mainly the result of lower debt payments.

However, Department of Revenue (DOR) Secretary Rick Chandler says that recent DOR projections are $99 million higher than LFB estimates for FY15, lowering the shortfall to $184 million.

In a letter to Department of Administration Secretary Michael Heubsch, Chandler pointed to the unusual pace of tax collections and lower refunds come April to explain the difference between agency estimates.

Total spending for appropriations and authorizations over the 2013-15 biennial budget reached over $70 billion, meaning that the $283 million budget deficit accounts for only 0.4% of total spending during the two-year period. While this percentage is low, the larger than expected deficit may mean cuts in Walker’s upcoming budget.

In response to the memo, Sen. Alberta Darling (R-River Hills) and Rep. John Nygren (R-Marinette) pointed out that likely budget reforms from Walker, increased consumer spending, and fewer withholdings in income tax paint a more optimistic picture.

“As clear evidence our reforms are working, the Bureau projects strong sales tax revenue,” the co-chairs of the budget-writing Joint Committee on Finance said. “People are spending more because they are earning more money and believe Wisconsin is headed in the right direction.”

April refunds will be lower for Wisconsinites because withholding changes made to the income tax resulted in less money being taken out of paychecks by the government in 2014.

Sen. Dave Hansen (D-Green Bay) also responded to the memo focusing on job creation and compensation.

“Instead of investing in those things that would bring in more revenue by creating jobs and boosting stagnant wages, the governor and Republicans have turned their backs on everyday Wisconsinites choosing instead to enact policies that have only made the problem worse,” Hansen said.

An LFB memo from December indicated Wisconsin is on track to finish the next budget, 2015-17, with a deficit of $824 million based on current law and mandatory debt payments. This is likely to change once Governor Walker unveils his full budget in February.