Wisconsin’s Self-Inflicted Budget Problems

Just six months after Wisconsin’s two-year state budget was passed, state revenues are projected to come in below expectations due to slow economic growth. Less revenue makes it more difficult for the current Legislature to pass bills with any cost. Even worse, the slower economic growth projections forecast significant budget challenges for the future 2017-2019 budget.

But don’t take it from me. On February 2, Republican Senate Majority Leader Scott Fitzgerald said “I think this next state budget is going to be just as rough as this past one. The economy is not going to continue to soar, it’s going to lag”. As a reminder, that ‘past one’ Senator Fitzgerald is referring to is the budget that slashed $250 million from the UW System and failed to even attempt to address the $1.05 billion cut from public schools over the last five years. What is most frustrating is these cuts cannot simply be chalked up to a lack of money, since they were made during a budget that spent over a billion dollars more than the previous one.

So why is Wisconsin state government in such bad financial shape? The answer is short-sighted budgeting and poor state economic growth.

Two budget decisions continue to stand out. The first is the ongoing decision to refuse the Medicaid expansion that would save Wisconsin taxpayers $320 million in our current budget alone, while providing health insurance for 83,000 more people. Wisconsin is the only upper Midwestern state to reject the federal money. Governor Walker and legislative Republicans have decided that denying health insurance to those earning less than $16,240 a year (to make a political point) is more important than funding K-12 public education and the UW System.

The second budget decision has been blindly supporting an expansive tax credit passed in Governor Walker’s first budget in 2011 that eliminates most state income taxes on owners of factories and agriculture producers. Originally estimated to cost $128 million a year by 2016-17, it is now estimated to cost more than twice the amount ($283.9 million). Simply delaying the final phase in of this credit by two years could have saved nearly $78 million in the current budget.

These tax cuts are among the more than $4.7 billion in state tax cuts passed over the last 5 years in an effort to drive economic growth. But the reality is that it hasn’t worked: Wisconsin’s economy has continued to lag behind the nation as well as neighboring states. Over the last four years, Wisconsin has been 32nd in private sector job growth, last in the Midwest, and over the last year Wisconsin has had a job growth rate that is nearly half of the national rate. Last week, the Philadelphia Federal Reserve Bank announced that Wisconsin is one of only seven states that likely has a shrinking economy in spite of the growing national economy. This news is made worse by the fact that Wisconsin is one of the only states in that group that cannot attribute its sluggish performance to historically low oil prices. This data mirrors the U.S. Bureau of Labor Statistics preliminary estimates that show Wisconsin lost 8,800 private sector jobs between October and December of 2015.

So, while Senator Fitzgerald and I don’t agree often, I must agree wholeheartedly with his assessment that our next state budget is likely to be ‘rough’. And I will go even further and make the not-so-bold prediction that rough budgets will continue as long the Governor and Republican majority continue to sacrifice valued Wisconsin institutions, like education, on the altar of badly-crafted tax cuts that mostly benefit the wealthy and aren’t designed to create jobs.


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