Surplus Leaves Evers, Legislators Even Further Divided

It takes a lot for Bob Lang, who has been the most respected watchdog of state government’s finances for decades, to use the “u” word. But the veteran director of the nonpartisan Legislative Fiscal Bureau did just that last week in a report to state officials:

“The increase in general fund tax collections in 2021, particularly in the months of April and May, is unprecedented.”

“Based upon the strength of collections and the vastly improved economic forecasts for the remainder of this year and the next two years, our analysis indicates that for the three-year period, aggregate general fund tax collections will be $4,427.4 million above … previous estimates.”

It was a stunning update on the state government’s cash position for Democratic Gov. Tony Evers and Republicans who control the Legislature: Tax collections will be $4.4 billion higher than expected by mid-2023.

The projection came weeks before the July 1 start of the next 2021-23 budget cycle. If the governor and lawmakers can’t agree on a new budget by then, state spending continues at the pre-July 1 pace.

Why will income, sales, corporate and other general-fund taxes through mid-2023 soar by about 8% over mid-pandemic projections made as recently as January?

Individual income tax payments through the first months of 2021 jumped by 6% — three times the January estimate, Lang noted in the final fiscal update before the governor and Legislature make final budget decisions. “This is likely due, in part, to the unprecedented level of federal economic assistance provided in response to the pandemic, which has bolstered incomes for many individuals during tax year 2020 and 2021,” Lang added.

It’s ironic that federal aid to help Wisconsin recover from COVID-19, which has sickened more than 611,000 state residents, and killed almost 8,000, lays the groundwork for a dramatic showdown between the executive and legislative branches over how the $4.4 billion windfall will be spent.

Evers quickly canceled $300 million in forced savings by state agencies in the budget cycle ending on June 30 he had ordered to respond to the pandemic and called for more spending on K-12 schools. As a result, the UW System keeps $45 million – money it desperately needs, said System President Tommy Thompson.

The additional $4.4 billion in taxes by mid-2023 justifies new spending Evers called for in the budget he outlined in February, the governor added: “I’m proud of the work we’ve done to respond to COVID-19 and put our economy in the best position to recover, which is why there’s no excuse for choosing not to fully invest in our kids and our schools, Broadband, venture capital and support for Main Street businesses, among other critical priorities, that will ensure we’re bouncing back and better than we were before this pandemic hit.”

But Republicans won’t use the new cash to justify spending hikes. Five Senate Republican leaders — Senate President Chris Kapenga, Majority Leader Devin LeMahieu, Finance Committee Cochair Howard Marklein and Finance Committee members Duey Stroebel and Dale Kooyenga — said raising spending significantly would invite long-term disaster.

“This is a temporary jump in tax revenue—sound financial planning would  require that this money is not spent on more government programs, but returned to the taxpayer,” Kapenga said. “There is no magic money tree, folks.”

“Hard-working taxpayers gave the state a massive surplus,” LaMahieu added. “We will take this moment to consider ways to significantly reduce the tax burden on workers and Main Street businesses and pay off state debt.”

Four top Assembly Republicans — Speaker Robin Vos, Majority Leader Jim Steineke, Finance Committee Cochair Mark Born and Speaker Pro Tem Tyler August — also vowed to cut taxes with that $4.4 billion.

“With so much money already flowing into Wisconsin from the federal government, this additional revenue gives us an opportunity to invest in the state’s priorities and to cut taxes,” said Vos. His caucus will lower “the income and property tax burden.”

“Assembly Republicans will continue to advance a reasonable, responsible and realistic budget that spends within our means, while also avoiding huge tax hikes on Wisconsin residents and businesses and welfare expansion like Evers proposed,” said Born. The Finance Committee’s budget will include “meaningful tax relief.”

A Democratic governor wants more spending. Republican legislators want tax cuts. A July 1 deadline. It’s Capitol crunch time.

Steven Walters has covered the Capitol since 1988. Contact him at stevenscotwalters@gmail.com