Wisconsin is coming out of a pandemic that devastated lives, employment, health, wellbeing and financial security. One thing it did not destroy was the state budget. In fact, budget projections show a $2.5 billion surplus at the close of the next budget.
But listening to the Joint Finance Committee (JFC) Republicans discuss the 2021-23 budget as they cut approximately $70 million designed to help the homeless in Gov. Tony Evers’ proposed budget, it sounded as though the state is in dire financial straits. Thursday the JFC takes up education budgets, and some Republicans are saying schools should not get any new money.
Actions taken thus far in the budget process and all signs of further action point to Republicans passing an austere budget to send to Evers — despite austerity not being indicated by rosy revenue projections.
Other states are fiscally strapped. For the first time since the Great Recession, the total amounts in states’ rainy day funds fell during the pandemic and one-third of states had less in these pots of money saved for an emergency, according to The Pew Charitable Trusts analysis of trends in all states.
The National Association of State Budget Officers (NASBO) calculated that due to pandemic shortfalls in tax revenues and increased spending needs, 15 states plugged their budget holes with a total of $12.4 billion from these rainy day funds.
Wisconsin has not tapped its rainy day fund. The rocky budget season that was feared at the start of the pandemic has not come to pass. Even setting the large influx of federal recovery funds aside, Wisconsin government is in good fiscal shape before tax revenue numbers have been finalized, which is expected in early June.
“What we’re seeing right now is that revenues are coming in higher than what states initially anticipated after the outbreak, and in a lot of instances they are still not back to what was expected before the outbreak of COVID-19,” says Brian Sigritz, director of state fiscal studies at NASBO. “At the same time states are facing increased spending needs related COVID-19 recovery. I’d say that the focus for states right now is helping people and businesses that are hurting because of the pandemic and helping the economy to recover.”
Taking credit for the bottom line
Rep. Evan Goyke (D-Milwaukee) asked Legislative Fiscal Bureau Director Bob Lang for specifics. Lang sent him a memo saying that absent any further changes and with budget actions through May 13, the state would end the next budget in June 2023 with a general fund balance of $2,588.8 million (or roughly $2.5 billion).
“It’s a really complex network of things that happened to prevent the kind of economic or fiscal challenges that we were forecasting a year ago,” Goyke says.
Republicans have been taking credit for any positive budget news with an often-repeated message that the state’s fiscal health is due to past “reforms” they made under former Gov. Scott Walker, by cutting workers’ wages and collective bargaining rights with Act 10, as well as through deep cuts to public schools and universities made shortly after Walker took office.
Goyke asked Lang to lay out the reasons for the positive ending balance. “So where does the $2.5 billion come from? That’s the number Republicans are saying is thanks to their sound fiscal management,” says Goyke, then answering his own question, “Wrong.”
The memo from the Legislative Fiscal Bureau (the nonpartisan gold standard inside the Capitol) states that around $750 million is money the state did not need to spend on Medicaid because the federal government increased the share it was paying a short time after the pandemic began.
“So, that had nothing to do with the Republicans in Wisconsin, it happened to us,” Goyke says, adding a side note that it’s proof Medicaid expansion money from the federal government that Republicans refuse to take is a financial benefit: “It’s a illustration of how that operates and how much money we save when the federal government increases their share of the Medicaid program.”
Another big savings came from changes to the state’s contract with Foxconn. On May 6, the JFC adjusted sums that will not be going to that project because the Evers administration renegotiated that contract, reducing payments in the new contract for 2021-23 by $463.9 million.
The final reason for the large balance is that Evers asked his departments to lapse — or temporarily reduce — departmental spending during the pandemic, which made up the rest of the savings.
“So one, Congress,” Goyke ticks off. “Two, Foxconn’s failure, so maybe we can credit the Republicans for that. Three, Evers. One, not Republicans, two not Republican, three not Republicans.”
Republican budget co-chairs Sen. Howard Marklein and Rep. Mark Born did not respond to a request for comment, but Marklein stated, ““Our balance sheet is the strongest it’s ever been,” in March to the Wisconsin State Journal, adding, “Last March or April, I never would have guessed we would have been in this strong of a position.”
State fiscal health
Politicians, at least on occasion, are known to argue that money is tight when they don’t want to fund something, and flush when it’s time to pay for their priority projects. It’s important to understand the state’s bottom line.
“In general, I would say it is looking better and better,” says Jason Stein of the Wisconsin Policy Forum. Looking at 2020 numbers, Stein says Wisconsin revenue collections were up .9%, which was better than the national average, which showed states in the aggregate down 2.5%. “I mean it’s not what we would have hoped for pre-pandemic, but significantly better than your average state,” says Stein. He adds that numbers from the Department of Revenue thus far for 2021 collections are also looking solid, although it is hard to compare those to prior years because of the delay in tax filing deadline.
In March, a state budget brief from the Wisconsin Policy Forum described Wisconsin’s budget picture as dire and rosy all in a couple of sentences:
“The pandemic slowed state tax collections, sent hundreds of thousands onto Medicaid health care and unemployment programs, cut prison populations, and lowered public school enrollments. Yet despite these sizable challenges, the state’s budget has held up relatively well and billions of dollars more in federal relief is coming.”
Both Goyke and Stein note that they are speaking only to the state balance sheet — and that is completely separate from the situation confronted by many individuals and families who continue to struggle as jobs and indicators of financial stress including elevated Medicaid enrollments have not rebounded.
“State finances are doing well, which is good because it puts the state in a better position to help with all those other things that haven’t gone well,” adds Stein.
The varying impact of the pandemic on state budgets has a lot to do with a state’s primary economic industries, says Sigritz of NASBO. Hit particularly hard were areas with huge hospitality and tourism sectors, as well as tax collections from oil and natural gas.
A big impact in the Midwest was on manufacturing. “Immediately after the downturn our manufacturing was impacted but by and large that’s recovered now,” Sigritz adds.
The economic effect of COVID-19 was different from the Great Recession or the early 2000s tech bubble in who it hurt. “This downturn’s been different than a lot of downturns in that the wealthy have been fairly insulated. The impact has mostly been felt on low-wage workers,” says Sigritz.
That takes less of a bite out of state revenue, because higher income earners generally make up a higher percentage of personal income taxes. In Wisconsin, around 42% of revenues come from personal income tax, according to PEW.
“On the other hand, it has largely impacted low wage workers. That has led to increased spending demands and that’s something we are seeing overall,” says Sigritz. “States are facing increased spending demands related to the COVID-19 and recovery in areas like public education, workforce training and different initiatives to help people find jobs, all those sorts of areas.”
Whether or not those demands get priority treatment in the Wisconsin budget will be largely determined by the Legislature’s budget committee’s current deliberations.