CURRENT STATUS: Gov. Evers is preparing his budget proposal and address.
Next Step: Gov. Evers will deliver his budget address on Feb. 18.
Previous Step: Agencies submitted their budget requests to the governor.
Whatever the US Constitution does not specifically authorize the federal government to do is left up to the states and to the people. While theoretically restraining the federal government, it provides an open invitation for state government to interject itself into its residents’ lives. There are two main restraints that stand in states’ way as they seek to exploit that constitutional mandate. First, the people can always vote out politicians who go too far. Secondly, the states cannot print money. This means the state budget process is a crucial fight in protecting individual rights and preventing government overreach. The people are ultimately responsible for waging that fight by holding politicians accounting for their decisions. The people can only do this when they have access to reliable information and analysis throughout the budget process. That is why covering this process continues to be a top priority at the MacIver Institute for Public Policy.
Wisconsin has 55 state agencies. These include departments, commissions, and public-private partnerships. Not all of them rely on state funding, and not all of them are under the state government’s direct control. Some of them are subject to oversight from the state government but little else. Others merely derive their authority to operate from the state government, which is enough to count them as a government “agency.”
When examining the state budget, the MacIver Institute focuses primarily on departments that rely on state taxpayer funds to operate and on those who have the most impact on Wisconsin residents’ daily lives. These include:
Like the state government, local governments cannot print money, and they also cannot set their own tax levies. History has shown that local governments will tax themselves and their residents into oblivion if given the chance, and so the state imposes strict controls over how they can raise taxes. However, state government has a big impact on local spending. State laws often contain requirements for local governments, which means the state must help provide the financial resources necessary to complete those requirements if it wants those laws to be followed. State-provided aid makes up a large portion of the state budget. Most of it is provided through the shared revenue program. The program is so important that lawmakers treat it as a de facto agency during the budget process, which is how MacIver covers it.
School districts have also historically demonstrated a proclivity towards taxing themselves into oblivion. Runaway school property tax bills resulted in the legislature creating school revenue limits in 1993. General school aid from the state goes towards that limit. Whatever’s left of the limit afterwards can be collected through property taxes. Consequently, the state is always under immense pressure to increase general school aid, which provides property tax relief. Few people seem to understand that that state aid basically comes from income taxes.
Until Wisconsin residents take an active interest in their local governments and school districts, state lawmakers will be under pressure to spend money in the state budget to protect communities from bad local decisions. That's why when local voters approve referendums, the state tries to offset the impact on local property taxes through tax credits.
The State of Wisconsin receives revenue from five sources. The total of all five sources is called “All Funds.”
The state budget allocates funds into five broad functional areas. These are: human relations and resources; education; environmental resources; shared revenue and tax relief; and “all other.”
Every state position is authorized by the state budget, which also specifies what type of revenue will fund it. The creation or elimination of state positions should not be an arbitrary process.
State laws create requirements; requirements can only be completed through action; actions are taken by people; people must be in a position to take action; positions are created by the state budget (which is, itself, a state law). Therefore, if you want to eliminate positions in the state budget, you need to eliminate the requirements that justify that position, which means you must change or eliminate the underlying law. Of course, any position that isn’t fulfilling a purpose under existing law is fair game, and agencies aren’t always good about explaining how positions line up with requirements.
Wisconsin is one of 18 states that writes an omnibus budget that covers all of state government in a single law. Most other states write multiple budget laws to cover different areas of government. Wisconsin has a biennial budget, which takes effect on July 1st of odd-numbered years and goes until June 30th of the next even-numbered year.
Wisconsin is one of 43 states that use incremental budgeting. Each budget’s spending levels become the starting point for the next budget. That’s why every budget inevitably spends more than the previous one. Wisconsin has put the pieces in place to transition to performance-based budgeting, which holds agency spending more accountable, but has never taken the final step to make that change.
Base-year doubled. When determining spending levels in the previous state budget, planners do not simply add up the two years spending levels from the budget. Instead, they take spending levels from the second year of the biennium and double them. This is called base-year doubled, and it usually makes it look like the last state budget was larger than it actually was. That ensures that each budget will be larger than the last, even in a cost-to-continue scenario. However, for the first time in generations, spending levels in the first year of the current biennium budget are higher than in the second year. That means the base-year doubled numbers make the current budget look smaller than it actually is, and in a cost-to-continue scenario, state spending would actually decrease.
Policy. There is always a debate over the inclusion of policy items in the budget that are supposedly non-fiscal in nature. That’s a hard line to draw because everything the government does has a financial impact. The budget, itself, is an expression of policy. It sets priorities and allocates resources based on those priorities. Ironically, the standing policy of the Republican-controlled legislature has been to start each budget cycle under a cost-to-continue scenario, automatically rejecting all of the policy items in the governor’s budget proposal. Ultimately, you cannot separate the budget from policy. Attempting to write a budget without considering policy basically means blindly doling out cash until you run out. It turns out that’s a good description of the state’s current budgeting method.
That being said, there is a reason why including new policy in the budget can create a big problem. JFC is the one that puts the new policies into the budget. When the bill goes to the Assembly and Senate floors for debate, there is no way to take those policies out, because amendments are not allowed. Lawmakers who don't sit on JFC can only vote for or against the entire budget. Oftentimes, they feel forced to accept the bad policy to keep the process moving, no matter how bad those policies are. After that, the governor has the ability to line-item veto any policy out of the budget bill he doesn't like. If he likes it, chances are conservatives won't.
Incremental budgeting. This is a budgeting method in which the end of each budget serves as the starting point for the next budget. This is the established budgeting method for the State of Wisconsin. This method of budgeting is best used to preserve the status quo. It inevitably leads to incremental budget growth in every budget. The MacIver Institute recently discovered through open records requests that state agencies do not have internal operating budgets. That is only possible because the state uses incremental budgeting. For a while now, Wisconsin has attempted to transition to performance-based budgeting. Under this method, agencies present their goals and describe their evaluation criteria to determine whether they’ve met those goals. (You can find those goals and performance measures in each agency’s budget request). This framework is supposed to drive the legislature’s decisions on how to allocate resources.
Offsetting Property Taxes. About 40% of the state’s discretionary budget is spent on property tax relief in the form of school aids and tax credits and shared revenue to local governments.
Two-Thirds Funding. Public school advocates regularly demand a return to “two-thirds funding.” That was the arrangement established in 1993 when school revenue limits were created. Both property taxes and state aid were subject to the limits, which meant whatever the state didn’t provide could be made up through property tax collections. At the time, the state agreed to pay two-thirds of the revenue limit total. That practice ended in 2003. (Gov. Jim Doyle signed it into law, by the way). Democrats regularly demand its return. The dirty little secret is that the state still does provide about two-thirds of the funding towards the school revenue limits, according to LFB. However, it’s obscured because much of it comes through tax credits.
999 Motion. JFC’s final vote is on motion number 999. That’s when it addresses all the final changes and adjustments for the budget bill. It usually takes place late at night, and as soon as it’s done, everyone rushes out the door to go home. Not surprisingly, it used to be a pork fest, that is until lawmakers tried to go too far in 2015. It included an item that would have exempted the legislature from the state’s open records law. The blowback was immediate and overwhelming (MacIver News was the first to call it out that night, by the way.) Since then, lawmakers have been skittish about the 999, but there’s always the suspicion that someday they’ll try slip in something devious again.
The 402-Year Veto. After the legislature passes a bill, it goes to the governor who can veto it or sign it into law. If the bill appropriates money (such as the state budget bill), the governor can use a line-item veto. That allows him to cross out whatever he doesn't like, or reduce spending amounts, and then sign it into law. This authority has constitutional limits. He cannot cross out individual letters to create new words or meaning. In 2023, however, Gov. Evers crossed out individual numbers to convert a two-year annual revenue limit increase for school districts into a 402-year annual revenue limit increase. That means that school districts get to raise their revenue limit by an additional $325 per pupil every year until the year 2425. There's a lawsuit questioning the constitutionality of Evers' stunt, which will eventually be decided by the state supreme court.
The budget debate tends to follow a predictable pattern. Here's what you can expect as the process unfolds.
Don't do anything until the Supreme Court rules on administrative rulemaking. Gov. Evers is trying to stop the legislature from having a say in what rules and regulations his bureaucrats write. It's had oversight of that process for the past 70 years, but Evers is now claiming it violates the principle of separation of powers. If the supreme court takes his side, then lawmakers will have to slash funding for agencies and boards throughout the budget to prevent them from writing new regulations and enforcing them. That will require the legislature to basically reinvent its entire approach to governing, and it won't be able to avoid it.
Switch to performance-based budgeting. Wisconsin has been toying with the idea of switching from incremental budgeting to performance-based budgeting for years. The tools are already in place, and the public has demonstrated support for this type of reform through the election of Donald Trump and the excitement over DOGE. It's time to embrace this reform in Wisconsin.
Eliminate appropriations that require oversight and delayed disbursement. The state supreme court ruled that the legislature can no longer provide oversight once funds are allocated in the budget law. Therefore, lawmakers shouldn't put anything in the budget that requires additional oversight. Agencies can come back later and request a supplemental appropriation if they really need it.
Write each agency's mission statement into law. This goes hand-in-hand with the switch to performance-based budgeting. As MacIver was researching this topic, it discovered state agencies get to write their own mission statements. In other words, they get to decide what their purpose is. That should not be up to interpretation. The legislature created each agency with a specific purpose in mind. That should be spelled out in the law.
Introduce new school funding and shared revenue plans. Nobody likes the current school funding formula. It pits districts against each other for resources, which entails advertising campaigns to attract students through open enrollment. Every district suspects other districts are getting more from the state. State lawmakers worry about what's going on in districts that they don't represent because too much state aid is involved. That's just a small sample of the complaints. It's time for the state to adopt a new school finance system, and the MacIver Institute has some ideas on what that should look like.
At the same time, no one is happy with the shared revenue formula for similar reasons. MIlwaukee, for example, is forever complaining that it is a "net donor" to the system. The state decided to distribute 20% of its sales tax revenue to local governments during the 2023-25 budget debate, but that just results in more redistribution. The state needs a system that incentives and rewards local economic activity. Right now, there isn't anything that does that (other than the 0.5% county sales tax). MacIver has some ideas on this too.
Let Evers veto the whole budget if he wants to. Evers is going to do a lot of showboating this year to strengthen his position to run for a third term. He's made idle threats to veto the whole budget before. This time, the legislature should call his bluff. As MacIver has pointed out, if he does that it would result in less state spending over the next two years. It is a very unique situation, and the legislature should not let it go to waste.
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