WPF Report Urges Caution in State Budget Process
'Evers’ plan would leave the state with a two-year structural deficit of roughly $4 billion.'
Gov. Tony Evers delivers his state budget address on Feb. 18, 2025. (Photo by Baylor Spears/Wisconsin Examiner)
The Wisconsin Policy Forum cautions state lawmakers and Gov. Tony Evers to consider the state’s past financial hardships when writing the next state budget in a new brief released Friday.
The report considers the state’s current financial position, Evers’ budget proposal, potential wants from Republican lawmakers and outside factors, including federal funding uncertainty, to explore questions lawmakers may consider in the coming months. And it suggests the state could be nearing a dramatic turn in its fortunes.
Evers introduced a vast budget proposal last month, and the process is now in the hands of lawmakers, who are likely to throw out Evers’ version, host public hearings and then write their own proposal. Lawmakers will then need to pass the bill in the Senate and Assembly before it goes to Evers, who will either sign it as is, sign it with partial vetoes or veto the whole bill.
“Throughout the 2000s, the state carried almost no reserves, leaving it exposed to the terrible fury of the Great Recession,” the report states. “Most of today’s lawmakers were not in their current offices during that dark time, and did not face the multi-billion-dollar shortfalls that had to be bridged in both 2009 and 2011 at great cost and sacrifice by taxpayers, schools, local governments and public workers.”
The report notes that “prudent decisions” by Republican and Democratic leaders have helped bolster the state’s finances and put Wisconsin in a position to “weather a recession much more effectively.”
By the end of the current budget, the state’s budget surplus will have gone from $7.1 billion to $ 4.3 billion, and Republicans and Democrats are both looking at the remaining surplus to fund their priorities for the next budget. The state also has a $1.9 billion rainy day fund. The report noted that this balance is greater than the state had throughout the 2000s and into the 2010s.
Gov. Tony Evers has introduced a budget that would increase state spending by 19% to fund increased investments in K-12 education, health care, child care and transportation. It would cut taxes for low- and middle-income residents and raise them on the state’s highest earners.
The spending would be paid for using the budget surplus, federal funds and revenues from raising taxes on the wealthiest Wisconsin residents. Evers’ proposal would leave the state with $646 million. Evers has said he’s reserved that amount due to potential uncertainty about federal money, though he recently questioned whether that is enough.
“If adopted, Evers’ plan would leave the state with a two-year structural deficit of roughly $4 billion,” the report states. “This would make it difficult to balance the 2027-29 budget, even if the economy remains strong and does not succumb to recent drops in the stock market and consumer sentiment.”
Legislature’s contrasting priorities
The final budget will likely look vastly different.
Republican lawmakers have said that they are likely to throw out Evers’ entire proposal, and that they want to use the budget surplus to prioritize widespread tax cuts and one-time projects. Lawmakers said they may propose their tax cut plans to Evers ahead of the budget in a separate bill, which they want him to sign before the budget as a whole. Last session, Evers vetoed GOP proposals that would have cut income taxes by over $1 billion a year.
“The state’s main fund is now spending more than it takes in, and its budget reserves, while sizable, are shrinking,” the report states. “Meanwhile, the Democratic governor and GOP Legislature are eying the state’s reserves and offering tax and spending plans that would deplete it and potentially leave the state with future budget gaps.”
The report notes that bipartisan compromise will be necessary to find a balance among varying priorities.
“Elected officials will have to consider the advantages of retaining [the state’s] fiscal safeguards and weigh those concerns against priorities such as investing in education and holding down increases in local property taxes,” the report states. “At the moment, the two sides appear sharply divided, but it is worth remembering that they have overcome such obstacles in the past and may yet do so again.”
The report considers the uncertainty for federal money given actions in Washington by President Donald Trump and the Republican majority in Congress to cut federal spending.
Evers’ budget leans in part on $18 billion in federal funding for programs including Medicaid, research and financial aid at UW schools and transportation projects.
The report says two objectives — preserving state funds and using state revenues to replace federal funds that are lost — “might come into tension with one another, since state spending now to make up for any cuts would leave less of a financial cushion for the state in the future.”
School spending, child care
The report also considers the growing number of school referendum votes across the state and ways to slow them, and it says lawmakers will want to ask how “aggressively” they want to act in response to that trend. Evers has proposed tying revenue limits to inflation, increasing state per-pupil aid and special education funding.
“If all of these increases came to fruition, they would likely curb referenda and property tax increases,” the report states. “However, they would also sharply increase state spending and are unlikely to pass the Legislature as written.”
It also touches on the challenges facing the child care industry. Evers is proposing dedicating $480 million to invest in the industry to continue the Child Care Counts program, which provides money to child care providers to help them meet costs but will run out by July.
The report cites tens of thousands of parents unable to find care as well as large numbers of centers unable to fill all their openings for care for lack of staff.
“We highlight these sobering figures not to advocate for or against such an investment but to note that child care accounts for a sizable chunk of the overall economy. To make an impact on child care costs, access, and quality that families in particular would notice, policymakers would have to free up substantial resources within the state budget from one of a limited number of revenue options,” the report states.
Other potential avenues to address the child care industry’s needs include using the TANF block grant to tap federal funds, implementing a mechanism to split child care costs among families, employers and the state, and enacting tax incentives.
The report also considers Evers’ $500 million prison reform proposal to close Lincoln Hills School for boys and Copper Lake School for girls, renovate Waupun Correctional Institution and close Green Bay Correctional Institution. It notes that even if Evers’ plan was approved there could be some challenges to implementation given that rates of reconviction and re-arrest haven’t changed significantly.
“The governor’s ‘domino’ plan also requires many steps to fall into place correctly in order to reshape the state’s correctional system,” the report states. “If any step fails, the state’s prisons could remain overcrowded with even less time to find a solution.”
The report expects the budget will draw on the budget surplus in light of the state’s ongoing challenges. It cautions, however, that “taxpayers have good reason to watch both sides in this process carefully to ensure the final budget does not erode too many of the state’s hard-won financial gains.”
Wisconsin Policy Forum recommends some caution in state budget process was originally published by the Wisconsin Examiner.
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