MacIver's Verdict on the 2025-27 State Budget

Wisconsin’s newest state budget went into effect last month, and it is unlike anything we have ever seen at the MacIver Institute. The combination of a Democrat governor and Republican legislature is expected to yield mixed results, but it doesn’t seem like conservatives got anything to cheer about this time around. The budget contains the largest spending increase this century, creates a long-term structural deficit, and slams Wisconsin residents with billions of dollars of hidden taxes and fees.

The last state budget spent $99.3 billion (all funds). Gov. Evers wanted $119.9 billion this time. The legislature approved $114.3 billion. With Evers' vetoes that dropped slightly to $113.7 billion.

Over the past twenty years, each state budget has grown 3% to 11% more than the previous one. The MacIver Institute initially predicted that this budget would grow by 10%. We assumed that lawmakers would meet the governor halfway, which they generally do. He wanted $20 billion more, so it made sense that the legislature would give him $10 billion. Instead, they went well above and beyond that by increasing total spending by 15%. That’s the largest increase in at least the past 20 years.

Despite that massive all funds increase, general purpose revenue (GPR) spending only increased by a billion dollars. GPR comes from state sources including income, sales, and excise taxes. The billion-dollar increase is covered by expected natural growth in the economy. Anything beyond that would have required a very obvious tax hike, which Republican lawmakers wanted to avoid. After all, their signature issue was passing an income tax cut.

So, where does the rest of the $13 billion come from in the new state budget? Largely from the federal government. The new state budget projects $5.6 billion more from federal sources, $3.7 billion from segregated state accounts, and $1.3 billion more from program revenue. Tragically, the rest of the increase comes from increased borrowing and blowing through the previous budget surplus.

Wisconsin ended the last budget with a massive $4.4 billion surplus in the general fund. What to do with that one-time money was a hot topic throughout the budget debate. Conservatives said it should not be used to fuel permanent spending increases, and instead it should be returned to taxpayers in the form of a rebate. That argument lost out in the end. The new budget virtually wipes out the surplus and puts the state on the path to a massive structural deficit by the summer of 2028 at the latest. The new budget reduces the surplus to $714 million by the summer of 2027. That means the state is overspending by $1.85 billion a year.

That money is mostly going to local governments to make good on a promise made in the last budget. The state agreed to put 20% of its sales tax revenue into the local government fund, which is then distributed to local governments as shared revenue. However, in the new budget, the state plans to spend all its sales tax revenue before making the transfer. And so, instead, it’s using the state surplus to provide shared revenue to local governments. That trick only works once or twice. The obligation to local governments is permanent, which means we’re already facing a crisis in the next state budget.

Not only is the state blowing through its surplus, but it’s also borrowing $3.16 billion on top of that. That is the highest level of bonding since Jim Doyle was governor during a recession.

The biggest beneficiary of this borrowing is the UW-System, which will be getting $1.23 billion for capital projects. The Department of Transportation comes in second with $277.7 million, mostly for the Southeast mega-projects. After that is the Department of Corrections, which will be getting $209 million.

MacIver considers funding increases from four different angles. There are percentage increases and dollar amount increases. There is also general purpose revenue (GPR) and all funds revenue. Percentages tell us how fast an agency is growing, while dollar amounts tell us how big it is growing. GPR tells us how much state taxpayers are supporting an agency, while all funds tell us how much everyone - state taxpayers, federal taxpayers, service customers – are paying. The three agencies that consistently showed gains were: Health Services, Corrections, and Public Instruction.

MacIver’s analysis here differs slightly from LFB’s report, because we compare the entire previous budget to the entire new budget. LFB compares the entire new budget to a contrived “base year doubled.” That involves taking funding levels in the second year of the previous budget and multiplying it by two to create an artificial baseline. That amount also includes “standard budget adjustments,” which added $557 million to the base level, further distorting the appropriations made in the previous budget. This whole practice obscures the true cost and growth of the state budget, especially when analyzing individual agencies.

Health Services (DHS) was the clear winner of the 2025 budget. Its all funds budget increased by $7.7 billion for a total of $41.2 billion. Only a fraction of it, $1.3 billion, comes from GPR. That’s because most of the new funding will be secured through the federal government's Medicaid formula, which means it will be provided by federal taxpayers and higher healthcare prices for everyone who’s not on Medicaid. When hospitals provide care to Medicaid beneficiaries, the bill is paid through three sources. First, DHS provides state funds. Then, the federal government matches those state funds. Finally, the hospital recoups the rest of the bill by shifting it to other patients. Key to understanding this system is knowing that the state does not pay the state's portion. That comes directly from a special tax on hospitals called the “hospital assessment fee,” which is obviously passed on to the hospital’s patients. In order to increase the federal match, this budget triples the hospital assessment fee. And so, while your state taxes won’t be affected much from DHS’ increased funding this budget, your health insurance bills almost certainly will be.

The Department of Corrections (DOC) also made out great in this budget, with a 28% funding boost (both GPR and all funds) including $784 million in added GPR dollars. Its total operations budget is $3.9 billion All funds, including $3.5 billion GPR. That does not include its new capital budget of $209 million. The largest funding items were an additional $20 million for overtime and $65 million for “inmate variable costs,” which includes things like food and medical care.

The next big winner is the Department of Public Instruction. It’s getting an additional $1.2 billion in this budget, almost all of it from GPR. It received a similar increase in the last budget, but education funding can be deceptive. A large portion of its new funding in the last budget went to general aid, which means it didn’t actually increase the amount of money going to schools. Instead, it offset the amount of property tax revenue the schools collected from local residents. This time, the new funding is mostly going to categorical aid. That money goes directly to schools and does not impact property taxes. That’s good for schools, but not so great for homeowners. They are practically guaranteed to see a big annual property tax hike due in no small part to Gov. Evers’ notorious 400-year veto, which increases school levy authority by $325 per student per year for the next 400 years.

Also, the Department of Children and Families (DCF) is getting a 17% all funds boost, which comes out to $509 million over the biennium. That includes a $44.2 million GPR increase. Its total funding is $3.5 billion all funds, of which $1 billion is GPR. This includes a $66 million windfall to daycares for “elementary school readiness,” a program that blurs the line between daycares and public schools.

The University of Wisconsin System wound up with a 16% increase in all funds, which came out to a $2.2 billion increase over the biennium. It has a total budget of $16 billion. It’s still not enough, apparently. Shortly after the budget was approved, the regents approved a 5% tuition hike.

Workforce Development (DWD), which also appears in the table above for receiving a 12% increase in GPR, did not really come out ahead in the new budget overall. Its all funds allocation only increased by 1%, which means that the additional GPR was used to offset lost funding in other parts of its budget.

As mentioned above, LFB uses a convoluted budgeting method called “base year doubled.” That method shows DWD’s All funds budget decreased by $5.3 million from the last budget. In reality, its all funds budget increased from $791.1 million to $797.1 million, a $6 million increase. That’s why MacIver did not use the “base year doubled” method for its agency analysis.

The Joint Committee on Finance consists of 16 elected lawmakers who are tasked with writing the state budget. They are supposed to review and approve every line in the budget bill. To make the job as easy as possible, they use incremental budgeting. That means they only have to approve changes to the previous budget rather than every single line. Even with that reduced workload, those lawmakers still take shortcuts. When they do, the bureaucrats in the Legislative Fiscal Bureau (LFB) get to decide what’s in the budget bill. Whatever they come up with goes to the Assembly and Senate for floor votes without any changes. JFC publishes all the budget motions that its members reviewed and approved. By comparing those tallies with the final budget law, we can see how much spending bureaucrats were able to slip in. (For this analysis, we used LFB’s “base year” method to ensure consistency between its reports and those from JFC.)

The MacIver Institute examined the appropriations that JFC approved for 27 different agencies and then compared those changes to those that appeared in the final budget bill. According to its motions, JFC approved $11.2 billion All funds increases, and yet that became $12.1 billion in the bill. That’s a $911 million difference. However, the total value of the changes (including both increases and decreases) came out to $1 billion.

Taking a closer look at GPR, JFC approved $2.9 billion in GPR funding increases for those 27 agencies. However, the final budget bill included $3.3 billion in GPR funding increases for those 27 agencies. That’s a $379.2 million difference. The total value of the changes (including both increases and reductions) came out to $650 million.

The impact of JFC's budget motions on those 27 agencies, resulted in an all funds budget total of $111.3 billion. With LFB's changes to those 27 agencies, it was on pace to total $112.2 billion. However, when LFB drafted up the whole budget for substitute amendment 2, it came out to $110.5 billion. That means it made up the $1.7 billion difference by making changes in the other 31 agencies.

How did all this happen? In its final motion of the budget hearings, JFC authorized LFB to make any changes necessary to “correctly reflect the various actions and intent of the Committee.” The motion did not include any limitation or oversight. Whatever LFB came up with, would be the final word. JFC did not review the final product before it went to the Assembly and Senate for the final floor votes.

Public Instruction benefited the most from LFB’s intervention. It picked up an additional $211.6 million GPR. Corrections got an extra $161.5 million. Health Services got $64.8 million more. Again, that didn’t come from elected members of the Joint Committee on Finance. That additional funding was determined by faceless bureaucrats without any oversight.

There's still another big question mark over LFB's work on the budget. The final law was published on July 3 as 2025 Wisconsin Act 15. The authorized appropriations it lists are law. They are not up for interpretation. It is illegal to change one penny without legislative approval. However, when LFB published its definitive report on the budget a couple of weeks later, its numbers were different from those in the law.

Under state law, the budget appropriates a grand total of $110.5 billion of all funds. According to LFB, it's $110.6 billion. The difference comes out to $61.1 million.

Under state law, the budget appropriates a grand total of $45.65 billion GPR. According to LFB, it's $45.91 billion. The difference comes out to $38.7 million.

Again, there is no wiggle room. If your budget numbers don't match the budget numbers that are in the law, then your numbers are wrong.

Under state law, the term “earmark” has a very narrow definition. According to LFB, it is a provision that provides money or tax benefits to a beneficiary “in a manner not determined by laws of general applicability for the selection of the beneficiary or beneficiaries.” A beneficiary can be an individual, organization, or a specific school or local government. Since 2011, LFB has been required to list out all the earmarks in the state budget. It caught 46 of them in the final budget bill. Gov. Evers vetoed 9 of them.

The list is not perfect. Evers caught one that LFB missed in his vetoes. The budget bill directed DNR to spend $70,000 on a dredging project in town of Brillion, which Evers vetoed.

MacIver caught one that both LFB and Evers missed. Buried in the Corrections’ budget was a $3 million earmark for the Village of Oregon’s wastewater treatment facility project. There were no details provided to JFC. It was part of an omnibus motion. State agencies do not typically take responsibility for local infrastructure projects simply because they have a facility in the community. Wisconsin residents in communities across the state are getting hit with higher water bills as their local governments upgrade their wastewater treatment facilities without heavy state subsidies. It’s Oregon’s good luck, apparently, that it is represented by JFC co-chair Howard Marklein.

The worst earmarks, however, in our opinion are those that circumvent established procurement processes for award grants and contracts. It doesn’t matter who the beneficiary is. The budget should not be used to cut corners in financial oversight.

One example that jumps out is $1 million to “Jobs for America’s Graduates.” That’s a lot of money for a nonprofit, and it didn’t require a grant application. Who is “Jobs for America’s Graduates?” Great question. It’s a national organization based in Alexandria Virginia with a very vague annual report. It’s most recent Form 990 shows it only gets about $4 million a year in total contributions, highlighting the impact of Wisconsin’s contribution. The website for its Wisconsin office provides almost no information other than its address in Madison. It doesn’t even list a point of contact. Although a million dollars might not seem like much in the midst of a $114 billion budget, it is irresponsible, nonetheless.

There are more reputable organizations too on the list like the Boy and Girls Club ($5.5 million) and the Special Olympics ($200,000). You’d be hard pressed to find any critics of either organization, but it doesn’t matter. The budget is not the vehicle to providing them with easy money.

First, the good news. This budget includes an income tax cut. Married couples will average between $230 - $253 in annual tax savings. Individuals will average between $143 - $190. Individuals collecting retirement income will get to claim a standard deduction of $24,000 and married couples can claim $48,000.

The new budget also eliminates the 5% state sales tax on home energy bills from May through October, beginning this October.

Gov. Evers’ 400-year veto is in effect, and the legislature choose not to mask its effects. The result is that property taxes on a median value home in Wisconsin will go up $173 next year and another $156 the year after that. That puts the biennium total at $502, wiping out those income tax savings.

Officially, the hospital assessment is the only tax increase in the budget. In the last budget, this tax was levied on hospitals and equaled 1.8% of patient revenues. The new budget more than triples that to 6%, which is estimated to generate an additional $1.1 billion annually. Those costs will be passed onto patients, presumably manifesting as higher insurance premiums. There’s strong evidence that the state expects that to happen. Believe it or not, the state also taxes insurance premiums at 2%. It projects that those collections will increase by 17% next year. That’s the highest jump in over 20 years. Obviously, the state expects some sector of the insurance industry to raise its premiums, and the health insurance industry is the most likely choice.

Technically fees are different from taxes, though the nuance doesn’t matter much to your average citizen. LFB lists 9 different fee increases impacting everything from driver's licenses to camping fees to church bingos. The budget doubles all the fees on charitable bingo and raffles with the annual bingo license going up $10, each bingo event $20, and the annual raffle license by $50. Increases to various camping fees will bring in an additional $4.8 million over the biennium. Those are mostly targeted at non-residents, though everyone will be subject to higher fees for campsites that have electric outlets. The budget also includes all kinds of fee increases at the DMV including a $50 increase on title fees, $8.50 for driver’s licenses, and $6 for new plates. Altogether, the higher fees in this budget are expected to bring in an extra $180 million over the biennium.

The most sinister revenue raiser in the new budget is the enhanced collection plan. The new budget dedicates 38 fulltime positions dedicated to enhanced collections, 10 more than in the last budget. “Enhanced collections” is just a nice way of saying shakedown. When you get a letter from the state claiming you owe taxes, even though you know that you don’t, that’s enhanced collections at work. The hope is that you just pay it rather than put up a fight. The state hopes to rake in an extra $77 million over the biennium using this tactic.

There’s no getting around it. This budget will result in higher taxes, fees, and cost of living for Wisconsin’s residents.

The new state budget is the largest budget in state history with the largest budget-to-budget increase in at least 20 years. It goes from $99.3 billion all funds in the last budget to $113.7 billion in this budget, a 15% increase. To limit the direct impact to state taxpayers, the higher spending level is funded primarily through borrowing and draining the general fund surplus.

Hands down, the biggest problem with this budget is that the state did not budget for shared revenue and will have to blow through the general fund surplus to pay it out. Based off of the projects for the second year of this budget, the next budget will be facing a $2 billion structural deficit. The biggest driver of that deficit will be the unfunded shared revenue payments. Ultimately, the state will either need to cut spending by at least $1.8 billion a year or increase revenue by that amount.

In a close second, the state's Medicaid funding scheme is the next biggest problem in this budget. The scheme involves a series of cost shifts that all eventually hit everyone who's not on Medicaid. The state is tripling hospital taxes, which are directly tied to patient care. The hospitals pass that tax onto patients through their health insurance companies, which manifest as higher insurance premiums. The state also taxes insurance premiums and anticipates those collections increasing by 17% next year, which gives us some idea of how much our health insurance costs will go up.

The modest tax cuts included in this budget are more for show than anything else. Those savings will be wiped away through higher property taxes and healthcare costs.

In analyzing this budget, the MacIver Institute took a close look at some of the underlying problems that contributed to them. The nonpartisan Legislative Fiscal Bureau has too much authority in the budget writing process with little if any oversight. Its bureaucrats were allowed to add hundreds of millions of dollars of spending items into the budget beyond what lawmakers on the Joint Committee on Finance approved. The processes that enable Wisconsin to have a biennial, rather than an annual budget further distort the state's budget cost and growth, while empowering bureaucrats over lawmakers.

To correct these issues, the MacIver Institute recommends that the State of Wisconsin adopt an annual budget and use zero-based budgeting to construct it. Lawmakers need to develop strong and direct controls over its bureaucrats in its support agencies to prevent them from distorting legislative intent.