Federal Funds Uncertainty Threatens State Budget

Wisconsin Gov. Tony Evers delivers his State of the State address on Jan. 22, 2025, at the State Capitol in Madison, Wis. (Joe Timmerman / Wisconsin Watch)

Many numbers in the two-year state budget Democratic Gov. Tony Evers gives legislators Tuesday should be written in pencil because uncertainty over future federal aid means they will have to be rewritten.

The current budget, which ends on June 30, totals $99.33 billion. But a stunning $28 billion of that — or 28% of all spending — is scheduled to come from the federal government, according to the nonpartisan Legislative Fiscal Bureau.

Another number puts that two-year total of $28 billion in federal cash in perspective: This year, all state general-fund taxes — personal and corporate income, sales, cigarette, liquor and miscellaneous levies — will total $22.3 billion.

President Donald Trump tried to freeze billions in federal spending already approved, although a judge has temporarily paused that freeze. Trump also has billionaire Elon Musk looking for waste and fraud in spending by federal agencies and trying to abolish departments and fire or lay off thousands of federal workers.

But, whether or not federal funds approved in the past come through, Republicans who control Congress are expected to approve cuts that Trump recommends in future federal spending – cuts that will shape the next state budget Evers and Republican legislators must approve this summer.

Tuesday, when he formally gives legislators his proposed 2025-27 budget, Evers is expected to repeat what he said after Trump tried to freeze federal spending:

“If Wisconsin’s federal funding continues to be threatened, delayed, and obstructed, make no mistake: I will continue using every power available to me to fight against those efforts to ensure Wisconsin’s kids, families, law enforcement, veterans, seniors, and so many others can continue to access the resources, services, and programs they depend on.”

Five state agencies were scheduled to get 96% of that $28 billion, the Fiscal Bureau reported. That includes:

Health care: The state Department of Health Services (DHS) was scheduled to get the most – $17.1 billion – in the current two-year budget. Most of that will pay for Medicaid programs providing health care to low-income, elderly and disabled residents. The number of Medicaid recipients varied from 1.3 million to 1.5 million over the last two years, or more than one out of every four residents in Wisconsin.

Another way to measure the budget impact of federal aid is the number of state employees it pays for. The Fiscal Bureau estimated 21% of DHS’s full-time workers will be paid with federal cash this year.

Universities of Wisconsin: The Fiscal Bureau says the UW system was budgeted to get $3.2 billion in the current two-year budget. The Bureau estimated that federal cash pays for 14% of UW system employees.

Wisconsin joined other states in suing to block a Trump Administration plan to put a 15% limit on overhead for federal National Institutes of Health (NIH) research grants. Wisconsin Public Radio reported that UW-Madison, which got $465 million from the NIH in 2023, spends about 48% on indirect research costs.

According to the lawsuit, NIH’s reduction of UW-Madison’s administrative and other indirect costs would eliminate approximately $65 million in funding in the current year, and result in a similar reduction in resources available to support research each year.

Warning of the cut’s impact, UW officials said, “Medical innovation will be slowed, delaying the creation of new treatments, new technologies, and new health workers.” They also warned that cuts in federal aid would require more state aid or tuition increases.

Transportation: The State Department of Transportation was budgeted to get $2 billion in federal cash in the current two-year budget to build and maintain highways, bridges and other systems. The Fiscal Bureau said that federal cash will pay for 877 of DOT’s 3,293 employees – or 26%.

Department of Public Instruction: Wisconsin’s education agency was scheduled to get $1.7 billion in federal aid in the current two-year budget to support students and schools. The Fiscal Bureau reported that about half of the agency’s 641 employees are paid by the federal government.

Children and Families Department: The agency that regulates the child care industry and administers foster care, adoption and welfare programs was also expected to get $1.7 billion in federal aid in the current two-year budget. Almost half of its employees are paid by the federal government.

If federal funds now paying $1 for every $4 state government spends are dramatically cut, Evers and Republican legislators will face a difficult choice: Use state funds to make up those cuts, or reduce – or even end – some popular programs.

Steven Walters started covering the Capitol in 1988. Contact him a stevenscotwalters@gmail.com