Lower-than-expected tax collections, slow national economic growth cited as key reasons
MacIver News Service | January 21, 2016[Madison, Wisc…] The 2015-2017 biennial budget will end with a $70.2 million surplus, according to new numbers from the nonpartisan Legislative Fiscal Bureau (LFB). That’s $94.3 million less than the agency had previously estimated.
The LFB projected a biennial surplus of $164.5 million last year, but revised that figure downward in a memo sent to the legislature’s Joint Committee on Finance today, citing the permanent extension of a small business federal tax credit and a worsening national economic forecast as key reasons.
The reduced figure is partly the result of a $158.2 million decrease in tax collections. Part of the reason for the decreased tax collections is the unexpected extension of a federal small business tax credit, Section 179, that will result in $75 million less in tax revenue compared with what the LFB projected.
Congress in December unexpectedly extended the Section 179 tax credit permanently and indexed it to inflation. The credit, aimed at helping small businesses, was previously set to expire.
The state also enacted tax credits for manufacturing and agriculture, reducing tax collections further.
The memo highlighted an unexpected surplus of $87.1 million in “sum sufficient” expenditures. Debt service, one such expenditure, is expected to be $18.8 million lower than estimated, the memo states. This means the state is spending less on interest on its debts.
The medical assistance (MA) program is also showing a surplus of $72.6 million, the result of lower-than-expected enrollment, the memo states. The surplus is an unexpected change from the program’s recent history of red ink.
The memo cites slightly slower national economic growth in 2015 as another reason for lower revenue estimates. Slower growth is also predicted nationally for 2016 and 2017, taking a toll on the ending biennial surplus.
Based on preliminary information through December 2015, the memo stated that individual income tax revenues for the current fiscal year were up 5.1 percent over the same period last year. Sales tax collections are also 2.3 percent higher through December 2015 compared to the same period through 2014 and are projected to accelerate to 3.9 percent for the remainder of the fiscal year.
In a statement, Gov. Walker heralded the nonpartisan agency’s review, saying it projects the state will end the 2015-17 biennium with a gross positive balance of $135 million. $65 million of that gross balance will automatically be set side in reserve, as required by state law, leaving a net surplus of about $70 million.
“We have a proven track record of keeping the state’s fiscal house in order, and these projections show the impact of our sound fiscal management,” Walker said in a statement.
The full report from the fiscal bureau can be found here.