State Budget Survives First COVID-19 Test

The first sign that COVID-19 didn’t — yet — put the state budget on a ventilator came last week. But the budget faces several positive-or-negative tests in the next few months.

Democratic Gov. Tony Evers, Republican legislators, leaders of school districts, local governments, health-care organizations and other special-interest groups must still worry about potential spending cuts in the current budget that ends June 30.

First, the good news. Two agencies, the Legislative Fiscal Bureau (LFB)  and state Department of Revenue said general-fund tax collections for the year that ended June 30 increased by about 1 percent.

Another way to think of it: General-fund tax collections last year totaled $17.5 billion. That was about $190 million more than the previous year and only $112 million (-0.6 percent) less than what had been projected in January, before the pandemic sent Wisconsin’s economy into a locked-down coma.

The pandemic shot Wisconsin’s unemployment rate up to a record 13.7 percent. It canceled hundreds of major tourism events — including the Democratic National Convention, Brewers and Bucks games, pro golf tournaments, Summerfest and the State Fair. The Milwaukee-area lost about 91,000 booked hotel rooms. A record number of unemployment Insurance claims swamped the state agency that oversees those benefits.

Those losses prompted “fiscal sky is falling” fears that general-fund taxes could fall by $2 billion, or about 11 percent.

Instead, the increase in tax collections means about $106 million will go into the budget stabilization fund — the state’s “break glass in case of emergency” fund. That fund will grow to $762 million, LFB reported.  That’s $762 million that’s available to offset any pandemic-caused drop in tax collections in the current fiscal year.

LFB Director Bob Lang said tax collections “will likely be down” in the current year, although it’s too early to predict by how much. And, remember, the $112 million the state had expected to collect — and didn’t — last year means that cash isn’t available this year.

Republican Sen. Alberta Darling, cochair of the Joint Finance Committee (JFC), said the $106-million transfer to the rainy-day fund will help the state get through a difficult time without raising taxes,  something Republicans who control the Legislature won’t do. “Because we were careful with the money taxpayers provided, our state finances are down, but not out,” she said.

Here’s the timeline in the watch for a potential budget crisis that threatens spending on K-12 schools, the UW System, health care and aid to local governments:

-Oct. 15: The State Department of Administration (DOA) publishes the official balance sheet for last year. It will score exactly how much state government spent, after Evers ordered emergency end-of-year savings, and reconciles that against the $17.53 billion in general-fund taxes that were collected. DOA’s report will establish what the cash-on-hand surplus was on July 1, heading into the current budget year.

-Nov. 20: DOA projects tax collections during the next two-year biennial budget, running from July 2021 through July 2023. Evers then issues budget guidelines to state agencies telling them how much to plan on cutting, or adding,  in 2021-23 budget requests.

-January 2021: LFB tells legislators starting work on the 2021-23 budget how much they have to spend – or not spend – depending on any COVID-19 damage.

The non-profit Wisconsin Policy Forum reported last week that spending on K-12 schools could be most at-risk, if COVID-19 significantly cuts tax collections this year. The “heavy reliance on state support and policies places Wisconsin’s schools in a comparatively precarious position, even in the best of times,” the Policy Forum said.

The report added that “attention to school finance issues is especially high right now, as the need to adopt and maintain balanced budgets in light of COVID-19 and its negative impact on state tax revenues will force policymakers to make difficult tradeoffs. Public school leaders are bracing for the possibility of state aid cuts as a consequence of these tough decisions.”

There are two wild cards in all these budget “what ifs.”

First, how much will tax credits to Foxconn total? Two years ago, Republicans and Walker offered record cash to Foxconn for its giant details-to-come-later manufacturing plant Mt. Pleasant, and specified job targets for full-time employees Foxconn hired.

Second, will any new COVID-19 aid package from Washington — if Senate Republicans, House Democrats and President Trump can ever agree  — include more aid for state governments?

Steven Walters is a senior producer for the nonprofit public affairs channel WisonsinEye. Contact him at stevenscotwalters@gmail.com