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Nov. 14, 2008

For the first time in over 20 years, Democrats hold the Governor’s Office and majority control in both houses of the Legislature. The implications of that reality are too numerous (and speculative) for this intro - but suffice to say a number of changes are in store in Madison, and are already underway.

The Democrats and Republicans from each house elected their leadership for next session and ushered in a new Assembly Speaker, Rep. Mike Sheridan, who, along with Senate Majority Leader Russ Decker, will set the tone of the legislative agenda for the next two years. Speaker-Elect Sheridan has already named Mark Pocan as the new Assembly Chair of the Joint Finance Committee. He and Senate JFC Chair, Mark Miller will set the agenda for the 16-member budget writing committee that will be dominated by 12 Democrat members next session.

The legislative agenda will unfold over the course of the next several months, but the Governor, Senator Decker, and others, have already put the marker down on certain issues they expect to revisit. The Hospital Tax and Oil Tax proposals that failed to pass last session top the list, with mandatory insurance coverage of autism disorders and cochlear implants close behind. The Governor and Democratic leaders are also working on an economic stimulus package for early next session, the details of which are still being worked out.

Amidst this flurry of post-election activity also came sobering announcements regarding the state budget condition. On November 11, the Governor announced the state is now facing a $5 billion deficit next session and a potential $500 million shortfall in the current fiscal year, which ends June 30, 2009.

The true depth of the budget deficit is still speculation at this point, and based on economic projections and assumptions that could and often change over time. The picture will become somewhat clearer on November 20^th when the Department of Administration and Department of Revenue publish the latest fiscal reports. But nearly all observers agree the budget situation is more than cloudy - it is raining and there is no rainy day fund in place to soften the impact of even a short-term recession. The harsh reality of the budget will be a tough first test for the new majority and likely to temper everyone’s agenda.

Wisconsin Developments

State Budget Deficit - This Time It's Different
In October, Governor Doyle announced the State was looking at a $3 billion general fund deficit going into the 2009-11 biennium. Since then, other cabinet officials have indicated the figure could be closer to $4 billion, with no bottom yet in sight as state and national economies continue to struggle with recession. On November 11, the Governor announced the state is now facing a $5 billion deficit next session and a potential $500 million shortfall in the current fiscal year, which ends June 30, 2009.

Deficit predictions have predicated other budget cycles and have been the norm since Governor Doyle first took office in 2003. In his first budget (2003-05), the Governor publicly touted that he would systematically address the $3.2 billion general fund deficit he inherited from his predecessor Republican governors, without raising taxes. To his partial credit, he accomplished that feat in his initial budget, but not without tapping into the segregated transportation fund and utilizing other short-term budget maneuvers to achieve the required two-year balancing act.

In the 2005-07 budget, a similar theme unfolded; with yet additional "one-time" funding transferred from the segregated transportation fund and other segregated funds to balance the general fund. In the 2007-09 budget, the state again faced deficit scenarios. In the last budget the Governor modified his prior tax position by introducing new taxes in his original bill, along with additional transfers from the segregated transportation fund and other "one-time" funding sources, like the Injured Patients Compensation Fund, to balance the general fund.

The Governor’s plan set off a protracted legislative battle between the Democrat Senate (which largely supported the Governor’s proposed tax increases plus additional tax initiatives like Combined Reporting) and the Republican Assembly (which advocated for no tax increases and deeper spending cuts). The result that came out of the Conference Committee included a lone remaining major tax increase (tobacco), sizeable segregated fund transfers to the general fund, a smattering of minor tax and fee increases, and some agency spending cuts - which set the stage for where we are today.

Generally, the discussion of a pending deficit stems from a look at projected spending over the next two-year period in relation to current revenue collections. When projected spending, carried forward into the next session, exceeds current revenue, the result is described as a “structural deficit”. Structural deficits, of varying levels, have existed for decades under both Republican and Democrat Administrations and have largely been addressed with the revenue growth the state automatically receives in an expanding economy during the course of the next 2-year budget cycle.

The point of distinction here is that the economy is not expanding. Absent revenue growth, the state will need to seriously cut spending, increase taxes, or some combination of both to address the deficit. Governor Doyle recently reported that the projected 1.5 percent increase in state revenues for this fiscal year (FY 09) is now projected to be a 2.5 percent decrease. He forewarned that revenue projections show a further decline in FY 10 with only a modest turnaround in FY 11. State spending, already on the books, is expanding, while revenue collections are shrinking as the collection of total personal and corporate income taxes and sales tax falls short of budgeted amounts.

In view of the current economic downturn and its anticipated duration, the Governor and the new Legislature face a budget challenge that is truly different from what we have seen before. How they plan to address it will unfold over the course of the next several months.

Doyle's Plan for 2009
The Governor’s plan will be introduced in February of 2009. However, the Governor and legislative leaders are already indicating their intentions to tap new revenue sources. For example, Governor Doyle and Senate Majority Leader Russ Decker have suggested that the Hospital Gross Receipts Tax and the Oil Company Tax that failed last session should be adopted. Those particular tax issues have yet to be tested in what will be a Democrat controlled Assembly in January and the newly-elected Speaker of the Assembly, Mike Sheridan, has stated he will not “go out on a limb” on either of the tax proposals before talking to his caucus.

General income and sales tax increases have not been ruled out by the Administration as before, but are being discussed as a last resort. Governor Doyle has forewarned of agency cuts and is also looking for state budget relief from Washington D.C. in the form of enhanced federal assistance.

It remains to be seen whether a budget repair bill will be needed in the early part of the 2009 session to deal with a currently projected shortfall of up to $500 million in the current fiscal year. The Administration and legislative leaders have indicated it is a real possibility, but are reviewing options, waiting on federal assistance decisions and waiting for more definitive budget numbers before making that call.

The true depth of the budget deficit is still speculation at this point, and based on economic projections and assumptions that could, and often change, over time. The picture will become somewhat clearer on November 20 when the Department of Administration and Department of Revenue publish the latest fiscal reports. But nearly all observers agree that the budget situation is more than cloudy - it is raining and there is no rainy day fund in place to soften the impact of even a short-term recession.

Senate and Assembly Caucuses Elect Their Leadership
for the 2009-10 Legislative Session
In the state Senate, status quo was king as neither Democratic Majority Leader Russ Decker nor Republican Minority Leader Scott Fitzgerald was opposed for their leadership positions.

In the Assembly, the contest for Speaker started at four, but by caucus selection day had been whittled to two: Mike Sheridan and Jon Richards. One dynamic in play was that of regionalism. Milwaukee leaders have been vocal about the need for stronger leadership positions in the state legislature, and Jon Richards is a strong advocate for the city as well as an established respected member of the Democratic Caucus. The Milwaukee caucus, while large in number, is only a fraction of the 52 members, and in the end Assembly Democrats elected Mike Sheridan Speaker. Sheridan’s election was a testimony to his leadership qualities and pragmatism. It has been decades since a Speaker with only two terms under their belt has been elected to lead the Assembly, but Sheridan seemed to be the favorite from the start and is expected to be a formidable leader for his caucus.

Senate Democrats elected Sen. Russ Decker as the Majority Leader and Sen. Dave Hansen, Assistant Majority Leader; Sen. Fred Risser, President; Sen. Pat Kreitlow, President Pro-Tem; and Sens. John Lehman and Kathleen Vinehout as Caucus Chair and Vice-Chair.

Assembly Democrats: Rep. Mike Sheridan (Janesville) defeated Rep. Jon Richards (Milwaukee) for Speaker of the Assembly; Rep. Tom Nelson (Kaukauna) defeated Rep. Pedro Colon (Milwaukee) for Majority Leader;

Other leadership positions to note are:

• Rep. Donna Seidel (Wausau), Assistant Majority Leader;

• Rep-elect Peter Barca (Kenosha), Caucus Chair, and;

• Rep. Tony Staskunas (West Allis), Speaker Pro Tem.

Running unopposed were Rep. Barbara Toles (Milwaukee) for Caucus Vice-Chair; Rep. Marlin Schneider (Wisconsin Rapids) for Sergeant at Arms, and;  Rep. Ann Hraychuck (Balsam Lake) for Caucus Secretary.

Senate Republicans re-elected Sen. Scott Fitzgerald for a second consecutive term as Minority Leader. Sen. Glenn Grothman was named Assistant Minority Leader, Sen.  Joseph Leibham was named Caucus Chair and Sen. Sheila Harsdorf was named Vice Caucus Chair.

Assembly Republicans: Rep. Jeff Fitzgerald Horicon) defeated Rep. Scott Newcomer (Hartland) for the Minority Leader position. Also:

• Rep. Mark Gottlieb (Port Washington), Assistant Minority Leader.

• Rep. Scott Suder (Abbotsford), Caucus Chair.

• Rep. Joel Kleefisch (Oconomowoc), Vice Chair.

DOT Announces Budget Request Imposing Tax on Oil Companies
The Wisconsin Department of Transportation announced this week that it will seek to impose an “oil company assessment” as a way to help shore up the state’s $5 billion deficit.

The DOT’s budget request is similar to Gov. Jim Doyle’s 2007-09 biennial budget proposal [see related documents on Hamilton Consulting Fuel Tax page], which eventually was removed before the budget was signed into law.  Under DOT’s current plan, the state would impose an assessment up to 2.5 percent for oil companies with gross receipts over $120 million.  In addition, oil companies would be restricted from passing the tax on to consumers. The constitutionality of the proposal, however, has been called into question.

Gov. Doyle was quoted as saying that his first priority is to fix the pending deficit without raising taxes, but said he could not rule them out.

"I am going to do everything humanly possible to avoid any general tax increase," he said. "We got through the last significant deficit (in 2003) without raising taxes, and that is what I really want to accomplish here."

"(But) if you finally get to a point where you would just have to destroy schools or have such high tuition increases at the university that ordinary people wouldn't be able to afford it, you know, then you have to look at everything."

The oil company assessment will undoubtedly be one of the more prominent and contentious issues during the upcoming budget debate.

Government Accountability Board Proposes Rule Regulating Issue Ads
The Government Accountability Board (GAB) this week voted unanimously to draft a rule to regulate so-called "issue ads" before elections.

The draft rule would prohibit the use of corporate money for issue ads that are run by special interest groups. The rule would also require groups running issue ads to register with the state and report their expenditures.

Issue ads talk about a specific policy or issue and then urge voters to contact their legislator or candidate in response, but stop short of telling the listener to vote for or against a candidate.

The GAB will formally submit the rule for publication and input from the public. The earliest the rule could be passed is spring of 2009.

While a number of groups hailed the decision, attorney Mike Wittenwyler, who represents a number of groups that run issue ads, predicted that the rule would be challenged in court if it is implemented.

Public Service Commission Denies Plan for New Cassville Power Plant
In a unanimous decision, the Wisconsin Public Service Commission (PSC) voted this week to reject Wisconsin Power & Light’s (WP&L) proposal to build a 300 megawatt coal-fired and biomass electric generating facility in Cassville.  WP&L is a subsidiary of Alliant Energy Corp.

In striking down the proposal, PSC commissioners cited concerns with the cost of the plant, $1.26 billion, and global warming.

"We are at a unique juncture in this country, and in Wisconsin, and decisions regarding new sources of electric generation need to account for the likely future costs of complying with constraints on carbon emissions," said Chairperson Eric Callisto.

According to Commissioner Mark Meyer, the proposed plant is not in the "public interest." "The record clearly demonstrates that there are alternatives that are more economically and environmentally sound," said Meyer.

WP&L officials said that the power plant would have provided enough energy for 150,000 homes.  Environmentalists opposed the plant arguing that its emissions would contribute to global warming.

WP&L planned to use renewable fuel for 20 percent of the plant’s output and shut down an aging coal-fired boiler in Sheboygan if the PSC approved the proposal.  These plans, however, did not sway the PSC into voting for the plan.

Voters Reject Measures to Mandate Alternative Energy
An interesting side note to last week’s elections is how alternative energy ballot measures fared throughout the country.  While the majority of the ballot measures were rejected, a closer look reveals that the outcomes probably do not represent a wholesale repudiation of renewable energy policies. For example, while voters in California shot down two clean-energy propositions, environmentalists opposed one of the measures.

California’s Proposition 7 would have established new rules requiring utilities to obtain half of the electricity they generate from solar, wind, and geothermal energy facilities by 2025.  Environmentalists and renewable energy supporters opposed Proposition 7 because many believed it would have actually stunted clean-energy growth by discouraging small solar power and muddled regulatory responsibilities.

San Francisco voters also rejected a ballot measure mandating strict renewable requirements.  The measure would have required San Francisco to obtain 100 percent of its energy from renewable sources by 2040.  While environmental groups, such as the San Francisco Sierra Club and League of Conservation Voters supported Proposition H, the measure was opposed by Mayor Gavin Newsom.  The mayor, an avowed environmentalist, opposed Proposition H because it would have allowed the takeover of the city’s private electric company.

Voters in Colorado also struck down a ballot measure that would have increased taxes on the oil and gas industries to pay for more programs, such as environmental conservation and clean energy - despite the fact that Colorado voted heavily for Barack Obama.

Meanwhile, Missouri voters passed into law a proposal that gradually increases the use of renewable energy to 15 percent by 2021.  The measure had little or no opposition.

While a number of these ballot measures failed to pass, it’s uncertain whether it represents a shift in public attitude away from alternative energy measures.   As previously noted, one of the ballot measures in California was actually opposed by environmentalists.  Moreover, voters in a typically more conservative state (Missouri) voted in favor of imposing new renewable energy standards, albeit at a rather modest pace.

What is certain is that similar measures will continue to appear on the ballot throughout the country in future elections.

Political News

Ziegelbauer: Deficits will temper agendas: Manitowoc Herald Times, Nov. 13, 2008. We're probably facing the biggest fiscal challenge the state has had to deal with in the past 20 years.

Wausau lawmaker lands Assembly leadership post: Wausau Daily Herald, Nov. 13, 2008. Seidel, D-Wausau, said the Democrats' focus in the new legislative session will be "jobs and the economy."

State representatives pick Barca to chair Assembly caucus: Kenosha News, Nov. 13, 2008. Barca will regain the majority caucus chairman’s post that he vacated when he left the Assembly for Congress in 1993.

State deficit will exceed $5 billion, Doyle says: Milwaukee Journal Sentinel, Nov. 13, 2008. The deficit nearly equals what the state spends in aid to schools for one year. It represents about 15% of the $33 billion in state spending requested by state agencies in the next budget.

Doyle, Democratic leaders work on economic stimulus package: Wisconsin State Journal, Nov. 12, 2008. Expected to become a top priority when lawmakers meet in January.

$5 billion budget deficit to bring job cuts, spending cuts, maybe tax hikes, Doyle says: Wisconsin State Journal, Nov. 12, 2008. The overall shortfall includes an expected $400 million to $500 million hole in the state's current fiscal year that would likely need to be fixed by June 30.

A reasonable decision (opinion): Milwaukee Journal Sentinel, Nov. 11, 2008. The state's rejection of a new coal-fired plant in Cassville makes sense. But now it's time to look for other options.

PSC rejects Alliant Energy's proposed coal plant: Milwaukee Journal Sentinel, Nov. 11, 2008. Climate concerns won out Tuesday when state regulators voted unanimously to reject Alliant's plan to build a coal and biomass power plant on the Mississippi River in Cassville.

Transit board suggests sales tax for rail, buses: Racine Journal Times, Nov. 11, 2008. A group representing three local counties and the governor is proposing a sales tax of up to .5 percent to fund public transit.

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