April 8, 2015
by Matt Crumb and Nick Novak
[Madison, Wisc…] As the nicer weather approaches in Wisconsin, so does debate on the 2015-17 state budget. Gov. Scott Walker introduced his plan to lawmakers in February, and the Joint Committee on Finance (JFC) held four public hearings around the state last month.Members of JFC will begin debating and voting on portions of the budget in the coming weeks. The full proposal is expected pass out of the budget-writing committee before Memorial Day, and the full legislature is expected to take up the budget bill in June.
Every inch of Walker’s proposal will get scrutinized during the process, and by the time it gets back to his desk, the bill will likely look different than it does now. But, before JFC starts making changes, we put together this short synopsis of the 600-page document.
Here is what you need to know about Walker’s 2015-17 budget proposal:
Overview
The 2015-17 proposal would spend $68.36 billion in total, which includes state general purpose revenue (GPR), federal revenue, segregated revenue and program revenue. Total GPR spending would make up 47 percent of the total budget, equal to $32.87 billion.
GPR spending is especially important because it is the funding that can be completely controlled by the state. All GPR funds come directly from Wisconsin taxpayers – income taxes, sales taxes, etc.
The budget would spend $1.67 billion less than the previous budget – a drop of 2.4 percent – but that is mostly thanks to Walker’s plan to make the University of Wisconsin System its own public authority.
Without adjusting for this change, spending would actually increase by $3.09 billion – a jump of 4.4 percent.
In addition, the budget would also borrow $1.56 billion for transportation, a new Bucks arena and a couple smaller projects. Transportation bonding accounts for $1.30 billion of that borrowing, while the Bucks arena plan requires $220 million in bonding.
Bonding would be down from previous budgets, but DOT specific bonding would go up significantly from previous years. The 2013-15 budget borrowed $2.05 billion overall, with just under $1 billion going toward transportation.
The five biggest line items in the budget proposal are the Department of Health Services (DHS), the Department of Public Instruction (DPI), the UW System, the Department of Transportation (DOT) and shared revenue, which is funding that is sent back to local governments.
Of the $68 billion budgeted for 2015-17, the five categories listed above account for $54.09 billion of the planned spending – nearly 80 percent of the total budget.
If we just account for GPR funds – which are directly controlled by the state – the top five categories by cost are DPI, DHS, shared revenue, the Department of Corrections (DOC) and the UW System.
These five departments make up 83 percent of the GPR budget plan, totaling $27.19 billion.
Walker’s budget would reduce the number of state employees over the previous budget – a victory for taxpayers.
The transition of the UW System to a public authority would reduce the total full-time equivalent (FTE) positions in the budget from 70,357 to 35,261. Essentially half of the state’s employees would be removed from the state rolls.
Without the UW plan accounted for, the total number of FTE position would still drop by 447.
Looking to just GPR funding, Walker’s proposal would decrease the total number of FTE position from 35,962 to 17,521. Without the UW proposal, positions would drop by 217.
Walker has made property tax relief one of the top priorities of his administration and that positive trend continues with his 2015-17 budget proposal. The governor’s budget would provide for a $211 million property tax cut. If the plan stays intact, property taxes will be lower in 2016 than they were in 2010.
This is certainly a small cut for taxpayers and the budget plan does nothing to reduce the income tax burden. However, the continued property tax relief is a welcomed change to the Doyle years.
That being said, lawmakers could still find more ways to reduce the tax burden on Wisconsin families.
According to the non-partisan Legislative Fiscal Bureau (LFB), Walker’s budget plan would end in a surplus of $58 million. What’s more impressive is that the proposal would also create a structural surplus. Without accounting for economic growth or any future policy changes, the current budget plan would setup the 2017-19 budget to finish with a $499 million surplus.
UW System
Walker’s budget proposal includes some major changes to the UW System. In the face of a tight budget, cuts have to be made – especially with Walker’s pledge not to raise taxes and to continue cutting them. One of the most debated funding reductions is to the UW System.
Over the two-year budget, the university system would face a $297 million reduction in state aid. However, to make up for the cuts, Walker proposed splitting off UW into its own public authority. This would give them greater flexibility over their own budget and would help find efficiencies to offset the decrease in funding.
Both the cut and the autonomy plan have drawn harsh criticism from supporters of UW – including legislators on both sides of the aisle. JFC co-chair Rep. John Nygren (R-Marinette) and Rep. Dean Knudson (R-Hudson) said they would like to reduce the cut and eliminate the autonomy plan, claiming UW is not ready to manage itself.
While the autonomy proposal is on the rocks, some have suggested the cut should stay given the $1 billion in reserves held by the UW System, $6 billion in assets held by two of the UW-Madison foundations and the inefficiencies on each campus.
UW-Eau Claire has already put a plan in place to save $2.8 million by eliminating 27 positions, and it will save another $1 million with other budget reductions. Hardly draconian cuts as some of Walker’s critics have claimed.
In addition, the UW System and many campuses have put a hold on non-essential hiring and banned travel outside the state. This raises questions as to why university employees needed to travel outside the state in the first place and how essential the 27 positions were to the core mission of the Eau Claire campus.
The UW System has a more than $6 billion annual budget, and Walker’s cuts amount to 2.5 percent of that. Taxpayers deserve the best university system they can afford, and we believe there are many more efficiencies to be found by UW.
The cuts not only make sense but are necessary if taxpayers are to be convinced that their money is being spent wisely.
Health Care
The governor is seeking changes to a number of health care programs administered by the state including childless adult benefits and the integration of a very fractured and localized long-term care network, all in the hope of bending the future cost curve.
Let’s give this discussion context.
Even without the federal expansion, Wisconsin’s Medicaid costs are exploding. Last September, Wisconsin’s DHS Secretary Kitty Rhodes requested an increase of $2.16 billion dollars for the 2015-17 biennium just to cover Medicaid’s cost-to-continue. That would have been a 13 percent increase over base funding for Medicaid – which totaled $16.8 billion – and $760 million of the increase would have come from state GPR.
On the enrollment side, DHS and Rhodes predicted an increase of just 2.4 percent by 2017, or 27,408 new Medicaid participants.
Fast-forward to March 2015, and LFB’s analysis of Walker’s budget.
Under the governor’s proposal, Medicaid spending would be set at $18.5 billion, or $1.7 billion more than the base, which is lower than DHS’ request. This is because a re-estimate of enrollment trends by LFB shows an even smaller growth projection of one percent, or around 12,000 additional enrollees by 2017. State GPR money would cover $647 million of the total.
Medicaid represents the single largest GPR increase in the entire budget.
So the question must be asked. Why such a big-dollar hike for a relatively small enrollment increase?
In DHS’ budget request, Secretary Rhodes gave us some insights about the main cost-drivers in the Medicaid program.
First, changes to BadgerCare Plus have removed the cap for childless adults and the program now offers health care to all such persons who are at or below 100 percent of the federal poverty level. This means the childless adult population has more than quadrupled since last year (FY14). Childless adults in Medicaid are projected to be 155,200 by FY17 compared to just 39,000 in FY14.
According to LFB, increases in the childless adult population would be responsible for over half of the $647 million GPR increase for Medicaid.
The reason why overall Medicaid enrollment is only projected to increase by 12,000 despite all of the new childless adults is because of the projected loss of 23,000 enrollees in Family Planning Only Services and 59,500 less parents and caretakers enrolled in BadgerCare Plus.
The governor also wants to seek permission from the federal government to implement a few reforms for the childless adults population. The first would be to impose monthly premiums to help with costs, including higher charges for those who engage in “risky health behaviors.” Second, the governor wants to initiate a form of drug screening to identify those who may need separate treatment.
A second reason why state costs are higher for Medicaid is a decrease in the federal matching rate, known as the FMAP rate. Federal support for Medicaid is calculated by each state’s per capita income relative to U.S. average per capita income. In other words, the richer the state, the less federal matching funds that state is provided.
In Wisconsin’s case, we are getting richer, which means the FMAP rate is scheduled to decline over the next few years. DHS has estimated that the cost of declining FMAP rates in the 2015-17 biennium will require the state to ante up $100 million over the biennium to cover the gap.
The next cost-driver is the area of Medicaid that has received the most attention in the budget debate – long-term care.
Long-term care is a series of Medicaid programs aimed at assisting the elderly and developmentally or physically disabled individuals in the state. These programs accounted for just seven percent of Medicaid enrollees in FY14 but made up 40 percent of the costs in that year.
The current system is very localized, which leads to administrative overlap and higher costs. The governor wants to contract with insurance companies who will be able to run the program statewide in an attempt to contain future cost increases.
The biggest long-term care program is Family Care, which provides health services to elderly individuals, adults with developmental disabilities and adults with physical disabilities through nine regional Managed Care Organizations (MCO).
There are 57 counties currently administering the state-run Family Care program, but seven more will join this summer. Under Walker’s plan, eight more counties would join by 2017 – making the program completely statewide.
Family Care participation has grown rapidly over the last ten years. In 2006, 9,897 participants were enrolled in long term care services in Wisconsin. The total nearly tripled in just three years, as 30,963 participants became enrolled by 2010. This meant that DHS expenditures for Family Care shot up 277 percent from FY06 to FY10.
Family Care now has nearly 40,000 participants and costs over $1 billion to operate. That works out to over $25,000 spent per enrollee.
A 2010 audit of Family Care by the Legislative Audit Bureau identified some expensive problems with the current system. The fact that there are nine different MCOs administering the state Family Care program in Wisconsin means costs for care will vary by MCO. For example, in 2010 monthly capitation rates – how much is paid to a provider for care – ranged from $2,627 to $3,542 for comprehensive care and $627 to $681 for intermediate care.
Having nine separate MCOs also leads to higher administrative costs because each organization must have their highly paid executive leadership. Chief Executive Officers and Chief Financial Officers at each MCO were being paid $94,000 to $323,000 in 2010.
Another long-term program called Include, Respect, I Self-Direct (IRIS) has grown rapidly since its inception in 2009. IRIS allows residents with disabilities to have a more involved role in their service provision. The program began in 2009 with just 700 enrollees, but has since grown to over 10,000 enrollees with operating costs exceeding $200 million.
The governor’s proposal would end the current IRIS program but states that self-directed services would continue to be provided under the statewide insurance MCOs. While this will not save taxpayers immediately, it is expected to create savings down the road.
The last significant change to health care under Walker’s budget is the transition of eligible seniors from the state’s SeniorCare prescription drug program to Medicare’s Part D prescription drug program.
Currently, Wisconsin receives federal Medicaid matching funds for SeniorCare enrollees who are under 200 percent of the federal poverty level. The governor’s plan would convert as many enrollees as are eligible to Part D starting in 2016 with the hope of reducing costs for SeniorCare going forward.
The transition to Medicare Part D is estimated to save $55 million in the first year, including $10 million in GPR, according to LFB. This plan would save taxpayers money while offering similar services to Wisconsin’s needy seniors.
Rep. Nygren has indicated opposition to Walker’s changes to SeniorCare, along with many other legislators. However, increasing premiums to help with costs may still be on the table. SeniorCare enrollees are required to pay a $30 annual enrollment fee and deductibles are calculated based on income.
K-12 Education
Funding for public K-12 education would stay largely intact under Walker’s 2015-17 budget proposal. His plan would increase overall funding for K-12 schools by $231 million over the biennium – but $211 million of that would be passed onto local taxpayers in the form of a property tax cut.
Therefore, schools would see an additional $20 million in funding over the two-year period. General school aids would stay the same in the first year of the budget and go from $4.49 billion to $4.60 billion in the second year – an increase of $108 million. Categorical aid, however, would drop in the first year and go back to 2014-15 levels in the second year of the proposal.
During the four public hearings around Wisconsin, the small decrease in funding proposed in the first year of the budget plan was a largely discussed topic. Many people came out to testify against those reductions.
Walker’s critics say education is not a top priority for him but education is still the single biggest expenditure in the state budget.
LFB is expected to recalculate the revenue estimates in May. If revenues increase, legislators have said spending more tax money on K-12 education is their first priority.
The governor’s budget also would make changes to the private school choice and public charter school programs in the state. Walker proposed lifting the caps on the statewide school choice program, which would allow any student in Wisconsin to attend a private school with a voucher.
The statewide program launched in fall 2013, but was capped at 500 students in the first year and 1,000 students in the second year. Removing the caps would be one more step toward an educational system where the money follows the child.
The 2015-17 budget proposal also includes the creation of a charter school authorizer board. This would allow for the expansion of independent “2R” charter schools statewide. These public charter schools operate independently of the local school board and teachers’ union – allowing for greater innovation.
Currently, only 23 independent charter schools operate in Wisconsin, and all but one are in Milwaukee.
The expansion is especially important because year after year the 2R charter schools in Milwaukee have outperformed their MPS charter and traditional public school peers. A statewide expansion would give yet another choice to parents when trying to find the best school for their children.
There is clearly a demand for more options in education. Looking just to the statewide school choice program, there were 2,415 applications for the 500 available slots in the first year. That number jumped to 3,407 in 2014-15, when only 1,000 vouchers were available.
The governor’s budget would also add an extra aspect to the state’s School Report Cards. Currently, they operate on a 0-100 scale but do not offer letter grades. Walker’s plan would insert letter grades into the report cards to give parents easier-to-understand information.
School district administrators have been vocal in their opposition to the idea of letter grades. Apparently they are afraid of the negative publicity if their school received a “C” or worse on the report card. We wish they would spend more time worrying about effectively educating their children and less about their reputation.
While Walker’s plan has a limited amount of school accountability, members of the Assembly and Senate are working on separate plans that add more accountability to our schools. The main difference between the two plans is the use of sanctions and if failing schools should be closed.
As the two houses continue to debate the issue of school accountability, it is unknown if a final measure will be added to the budget.
Also on the education front, Walker included language in his budget proposal that would ensure no school district in Wisconsin has to adopt the federal Common Core standards – something many conservatives have applauded, though some say it doesn’t go far enough.
Transportation
Last November, DOT Secretary Mark Gottlieb raised a lot of eyebrows when he asked for $750 million in additional revenue from raising the gas tax and increasing multiple fees. Gottlieb also wanted to increase spending by $1.3 billion, or 22 percent. The governor, however, has gone a much different route.
Instead of raising taxes and fees to bring in more revenue to Wisconsin’s transportation fund, the governor’s budget would bond $1.3 billion over the biennium to pay for current and future projects. The state’s transportation fund is the dedicated pot of money that pays for transportation projects in the state.
Big projects that are seen as high priorities for the governor include $450.8 million for Southeast Wisconsin Freeway Megaprojects such as the Milwaukee Zoo Interchange and I-94 North/South projects. Another priority is $36.8 million over two years for the completion of the Stillwater and Hoan bridge projects.
While overall state bonding would be at its lowest point since the 2005-07 budget, transportation bonding would be about 30 percent higher than last budget. The percentage of transportation fund revenues that must go to pay debt service would likely exceed 20 percent under the governor’s proposal.
Raising the gas tax has been identified as a “non-starter” for Senate Majority Leader Scott Fitzgerald (R-Juneau) and seems unpopular in the Assembly, as well. However, Speaker Robin Vos (R-Rochester) may be more friendly to fee increases on items like vehicle registration to steer more revenue to the transportation fund.
JFC members showed clear concern over the amount of bonding in the governor’s proposal during budget hearings held in early March. While a final proposal from legislators has not been announced, it is likely that the governor’s transportation budget plan will see changes.
One change that seems to be missing from the argument is a reduction in spending. Lawmakers have been too concerned with how to get more revenue to pay for all of these projects. But when it comes to transportation, Wisconsin does not have a revenue problem. It has a spending problem.
Prevailing Wage
Repealing the state’s prevailing wage law is not in the governor’s budget proposal, but we cannot find any reason why it should not be. The current law arbitrarily jacks up the cost of publicly funded construction projects all across the state.
In fact, a study recently released by the Wisconsin Taxpayers Alliance (WISTAX) found that prevailing wages are costing taxpayers an additional $200 to $300 million a year, and the WISTAX study only looked at vertical construction projects.
If we included horizontal projects like roads and bridges, the savings could be even more. Looking for ways to lower transportation spending? This is at least one option.
For fiscal hawks that want to rein in spending, this is a major issue with a simple solution.
Bucks Arena
The governor has shown a keen interest in keeping the Milwaukee Bucks in the state. The NBA has given an ultimatum to the franchise that if there is no new arena, the team would be purchased back from the new owners and moved to a new city.
The arena is said to cost anywhere from $400-$500 million. New owners Wesley Edens and Marc Lasry have committed $150 million and former owner and U.S. Sen. Heb Kohl would pitch in $100 million towards the project.
Walker’s proposal would use $220 million in state bonding to help fund the arena, but utilizes a unique revenue capture to pay the debt service. The plan would catch current and future tax revenue from players and other high-end Bucks affiliates to pay for the bonds. The deal would count on player salary growth and other growth such as TV deals to enhance revenue over the years.
However, a Legislative Fiscal Bureau analysis of Walker’s plan shows total future costs to the state, including base bond amounts and interest, could be upwards of $488 million. This has caused Republican leaders in the legislature to search for alternative funding plans for the arena.
Sen. Fitzgerald has proposed using assets from a little known state department called the Board of Commissioners of Public Lands (BCPL) to help fund the arena. The BCPL receives revenue from management of public lands and other public assets in the state and has accumulated $1 billion in assets.
The board uses its money to give low interest loans to public schools and to other localities. Fitzgerald’s plan would require a $150 million loan from BCPL and is considered preferable to regular state bonds because debt service money would stay in the state and be used for public purposes.
Speaker Vos signaled support for BCPL plan but believes the City of Milwaukee and the county should contribute to the project. Mayor Tom Barrett previously refused to promise any financial help from the city, but said last Thursday that the city and county could possibly contribute a combined $50 million for the project.
While there has been quite a bit of debate on how to pay for a new Bucks arena, little has been said about the need for public support. Should it really be left up to taxpayers to subsidize a large portion of the arena, or should the Bucks’ billionaire owners cover the costs?
Other franchises have been able to build state-of-the-art arenas without public support. The Golden State Warriors in San Francisco are building a brand new $600 million arena right now – without any taxpayer funding.
Wisconsin taxpayers should not be on the hook for a new arena. Unfortunately, the debate on a new Bucks arena is far from over. Vos and Fitzgerald’s plan could be the final one, but neither has said if the new plan would be included in the budget or as separate legislation.
Department of Natural Resources
The governor’s budget plan would change a number of functions at the Department of Natural Resources (DNR), the most impactful of which is freezing the Knowles-Nelson Stewardship Program.
The Stewardship Program gives bonding authority to the DNR for land acquisition, local assistance for stewardship efforts, and grants to non-profit conservation organizations. From FY04 to FY14, $586.5 million in authorized bonds were approved for Stewardship.
Annual debt service for the Stewardship Program increased from $40 million in FY06 to $90 million in FY14 and is now responsible for an astonishing 70 percent of GPR expenditures at the DNR. Debt service at that level is not sustainable.
The governor’s proposal would freeze stewardship bonding until GPR expenditures for debt service is brought down to an annual level of $54.3 million.
It is unclear when this level of debt service can be achieved, but it has been estimated that it may not be until 2028. GPR debt service for Stewardship will be upwards of $71 million in FY16 and FY17 assuming no more bonding takes place.
Publicly owned land for conservation now makes up 17 percent of all land in Wisconsin, or 5.9 million acres, according to the DNR. The Stewardship Program has acquired 627,600 acres of land in its 25-year existence.
In the interest of keeping it simple, we should not be borrowing money we don’t have to buy land we don’t need.
JFC to Begin Budget Debate in Coming Weeks
JFC is expected to start the executive sessions on the budget in mid-April. Most major items like K-12 education, the UW System and transportation will likely be debated near the end of May, while smaller and less controversial items will be taken up earlier.
One thing is for certain, though. The 2015-17 budget that Walker proposed will see multiple changes before it passes through both houses of the legislature in June.
The MacIver Institute will provide updates throughout the budget process and should serve as your one-stop shop to get all the information you need. Follow us on Twitter, Facebook and our Budget Blog for the most up to date information and analysis.
Matt Crumb is a Research Associate at The John K. MacIver Institute for Public Policy
Nick Novak is the Director of Communications at The John K. MacIver Institute for Public Policy