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May 15, 2007

Development of the state biennial budget (7/1/07 to 6/30/09) is the primary focus this legislative season. We at The Hamilton Consulting Group will be actively involved throughout what is expected to be a very lengthy process. Below we have attempted to provide a glimpse of a process that must function with a “split” Legislature with strong, competing philosophical and partisan differences.

Policy Developments

State Budget; Process Preview
The Wisconsin Legislature’s Joint Committee on Finance (JFC) has begun voting on items to be included or excluded in its version of the 2007-09 state budget. With a “split” Legislature - Republicans control the Assembly; Democrats have a majority in the Senate, and JFC is comprised of eight members from each House and each party - it is almost a foregone conclusion that:

• JFC will divide along party lines on virtually all controversial issues;

• Each House (Senate and Assembly) will adopt its own version of the budget that will differ significantly from its counterpart in the other House;

• Final resolution will come from a Conference Committee, again equally balanced with members, including leadership, from both houses and both parties, and will require substantial compromise from both sides.

Before JFC began voting, the co-chairs of the committee agreed to the removal of a number of items from the Governor’s proposed budget that were deemed pure policy, having no direct fiscal impact on the state budget.

The co-chairs also agreed on which portions of JFC action on the proposed budget would work off of the bill submitted by the Governor, thereby requiring nine votes to remove an item proposed by the Governor, and which portions would work from “base” and require nine votes to be added to the document. This action is necessitated by the evenly divided membership, allowing each side an “advantage” on roughly one-half of the issues to be voted upon in committee.

See the JFC April 20 Press Release regarding Budget Procedures (bill vs. base) for the Joint Committee on Finance and the list of non-fiscal policy items that have been removed from the Governor’s proposal.

The Governor’s proposed biennial budget includes eight primary “new” funding sources, all of which provide the necessary funding for new and/or expanded programs also included in the budget document. The “new” (primarily fee and tax increases) are:

• Real estate transfer fees

• Vital records Fees

• Hospital tax

• Cigarette Tax

• Motor Vehicle Registration fees and other Transportation fees

• Tipping Fees

• Oil Company Tax

• Transfer from the Patient’s Compensation Fund

Republicans on JFC are expected to vote against all the new funding sources, opposing increases in taxes and fees. This position means that the Republicans will also be voting against all of the new or expanded programs that are dependent upon those funding sources, regardless of whether or not they support the merits of the respective programs.

To further complicate the process, most of the new funding sources require nine votes to be removed from the bill, while many of the new or expanded programs require nine votes to be added, resulting in increases in fees and taxes but rejection of new or expanded programs that would be dependent on the increased revenues. This has already occurred with votes to increase the real estate transfer fee and the tipping fee, but with a rejection of the programs intended to be funded by these new revenue sources.

Whatever product comes out of JFC will be short-lived since, as previously mentioned, the Senate and Assembly are expected to adopt their own separate and competing versions eventually leading to the establishment of a Conference Committee.

The deliberations and work of Joint Finance are, nonetheless, very important to the budget process. Much of the philosophical debate will take place during JFC deliberations. The committee will also clean up technical problems and issues; identify areas of bi-partisan support; and, set up the primary differences between the two houses and two parties in advance of action by the respective houses and Conference Committee.

Historically, the Legislature has targeted July 1 as the date by which it hopes to wrap up its budget session and pass a state budget on for final action, including line item vetoes, by the Governor. The way things are lining up this year, it looks like a long summer and we may not have a new state budget until fall.

The Legislative Fiscal Bureau (LFB) website contains detailed information, including background papers, alternatives and motions on all significant issues being addressed by Joint Finance. We commend this website to you for comprehensive, detailed information on issues of interest and concern.

The State’s Real Estate Broker Charged in Kickback Scheme
A federal criminal complaint filed by U.S. Attorney Steven Biskupic alleges that Larry J. Lupton, a vice president for UGL Equis Corp., sought up to $75,000 in kickbacks from a potential bidder on a state Department of Administration building. The real estate agent, Larry J. Lupton, was charged with asking a bidder for a $75,000 kickback and revealing confidential bid information.

The prospective bidders notified the U.S. attorney and State Attorney General J.B. Van Hollen of the alleged offenses. Both offices participated in the investigation.

State Department of Administration secretary Michael Morgan last week sent the company a letter terminating the state's contract with Equis and the state has abandoned plans to sell the lakefront building, which it had hoped to sell for approximately $30 million, by June 30 to help shore up the state budget.

Equis had an exclusive listing agreement with the state of Wisconsin that included a commission that many local real estate professionals had publicly cited as being almost twice what they deemed appropriate for the potential sale.

Speaker Names IT Task Force
Assembly Speaker Mike Huebsch recently announced the state legislative members of the Speaker’s Task Force on Information Technology Failures. Rep. Phil Montgomery will chair the committee, which includes fellow GOP Reps. Sue Jeskewitz, Don Pridemore, Jim Ott, and Jeff Wood. Democratic Reps. Louis Molepske, Josh Zepnick and Mike Sheridan will also serve on the committee.

The task force is charged with exploring a number of failed information technology projects currently plaguing state government, and looking to successes in the public and private sector to find working solutions. (See April 19 Tidbits article.)

Last month, the Legislative Audit Bureau released an audit of the Information Technology Systems Projects in the state, finding at least six IT projects that have experienced cost overruns and delays, including one that was terminated this year after more than five years and $23 million had been invested. The total bill for failed and troubled projects is estimated at more than $170 million.

Energy Bill Proposed
A Republican legislator is proposing a bill called the Energy Independence Act, which would create a series of tax credits for items geared toward energy independence.

In addition to using various tax credits to encourage the research, development, sale and purchase and renewable fuels, the Energy Independence Act alters the motor vehicle fuel tax to encourage the consumption of fuel containing at least 85 percent ethanol (E85) and diesel fuel containing at least 20 percent biomass (B20). Under the bill, both the ethanol portion of E85 and the biomass portion of B20 would be exempt from the state’s gas tax.

Economic Development Conference Offered New Perspectives
The Association of Wisconsin Regional Planning Commission’s Regional Economic Development Conference, held on May 2, offered national and Wisconsin perspectives on regional economic development.

Featured speakers were James Otterstein, former Wisconsin Economic Development Association (WEDA) President, and Myron Orfield, University of Minnesota Law professor, who focused on regional cooperation and Minnesota approaches to regional economic development.

A week following that conference, more than 90 economic development leaders from around the state attended the 2007 Wisconsin Economic Development Association (WEDA) spring conference in Janesville to discuss “Adding Value & Leveraging Resources” to enhance local economic development.

Wisconsin Politics

Straw Poll Favors Fred Thompson for President
State GOP activists voting in the annual WisPolitics.com Straw Poll this weekend favored former U.S. Sen. Fred Thompson for president in 2008. Fred Thompson received 95 votes, compared to 84 votes for former Wisconsin Gov. Tommy Thompson. Mitt Romney was a distant third with 41 votes.

Former New York Mayor Rudy Giuliani finished on top in a recent Strategic Vision poll of Wisconsin Republicans, favored by 22 percent of those who participated. Tommy Thompson and John McCain tied for second place in that poll, each with 16 percent.

The Republican Party of Wisconsin executive committee elected its youngest-ever chairman following the state convention on Saturday, tapping 35-year-old Kenosha attorney Reince Priebus. In 2004, Priebus ran for the State Senate against incumbent Senator Bob Wirch. Former State Sen. Cathy Stepp, Racine, was selected as treasurer.

Federal Developments

Doyle Testifies in D.C. on Farm Bill
Governor Jim Doyle testified before the Senate Agriculture Committee in Washington, D. C. earlier this month on the reauthorization of the Farm Bill. He focused on several aspects of the legislation that promote conservation, including those that encourage landowners to protect and restore wetlands.

The farm bill provides payments to farmers, as well as other help to supplement their incomes, manage supplies and support crop prices.

Political News

Key state Democrats throw support behind Clinton in 2008 bid: Milwaukee Journal Sentinel, May 14, 2007.

Assembly should follow Senate on reform bills (opinion): Appleton Post-Crescent, May 14, 2007.

Madison stem cell company receives $1 million from state: Eau Claire Leader-Telegram, May 14, 2007.

Study: Tourism spending is at highest since 2000: La Crosse Tribune, May 13, 2007.

State GOP looks to rebound from disastrous 2006: Appleton Post-Crescent, May 13, 2007

Leaks in the system (opinion): Milwaukee Journal Sentinel, May 13, 2007.

Democrats find choices appealing: Milwaukee Journal Sentinel, May 12, 2007.

Buyers dampen house prices: Milwaukee Journal Sentinel, May 12, 2007.

Thompson confident GOP nomination is within reach: Milwaukee Journal Sentinel, May 12, 2007.

Cost to register a boat, dump garbage would increase under budget: Eau Claire Leader-Telegram, May 10, 2007.

Bill would require children to wear life preservers: Marshfield News Herald, May 10, 2007.

Senate bill restricts 'issue ads': Madison Capital Times, May 10, 2007.

Protect consumers from markup law (opinion): Wisconsin State Journal, May 10, 2007.

Upcoming Fundraisers

May 15

• Tommy Thompson, Altoona

May 16

• Rep. Jeff Fitzgerald (R-Horicon, Beaver Dam

• Rep. Bill Kramer (R-Waukesha, Waukesha

May 18

• Rep. Terry Moulton (R-Chippewa Falls), Eau Claire

• Rep. Terry Moulton (R-Chippewa Falls, Eau Claire

May 19

• Rep. Rich Zipperer (R-Pewaukee, Brookfield

May 21

• Sen. Alberta Darling (R-River Hills), Milwaukee

• Sen. Mary Lazich (R-New Berlin, New Berlin

• Sen. Lena Taylor (D-Milwaukee, Madison

• Rep. Scott Suder (R-Abbotsford, Madison

May 22

• Sen. Mary Lazich (R-New Berlin, Franklin

• Rep. Phil Montgomery (R-Green Bay, Green Bay

For details, go to Hamilton Consulting Fundraiser Calendar.