Budget Update

2007-09 Wisconsin Budget Update

The Hamilton Consulting Group

July 2007

Tax Summary

(Education Summary - Below)

Homestead Tax Credit
Governor – Proposed to increase funding by $4,000,000 in 2007-08 and $8,000,000 in 2008-09 to fund an expansion of the homestead tax credit. Beginning in tax year 2008, increase the maximum household income amount under the homestead tax credit each year from the current level of $24,500 by a percentage equal to the percentage change between the Consumer Price Index for all urban consumers, U.S. city average, for the month of August of the previous year and the same index for the month of August, 2006.

Joint Finance – Modified the Governor’s recommendation by first applying the provision to the 2007 tax year and by indexing the homestead tax credit maximum income level, maximum property tax amount, and income threshold formula factors to the percentage change between the CPI for the month of August of the previous year and for the month of August 2005 rounding each factor to the nearest $10. This would increase the cost of the tax credit by $10,300,000 in 2007-08 and $16,100,000 in 2008-09. [See JFC 613]

Senate – No change.

Assembly – Deleted the homestead tax credit formula changes that would index the maximum income level, maximum property taxes, and income threshold formula factors by the annual change in the consume price index beginning in tax year 2007. Also restricted the homestead tax credit to those claimants who are either 65 or older, married, or have one or more dependents. Also increased the maximum income level factor of the credit formula for the remaining claimants from $24,500 to $25,800 effective in tax year 2007, and index this fact to changes in the consumer price index, effective in tax year 2009. These changes would reduce the estimated cost of the credit by $106,600,000. [See Assembly 148]

Individual Income Tax Exclusion for Retired Persons
Governor – No provision.

Joint Finance – Provided an individual income tax exclusion for up to $5,000 per person aged 65 or older for taxpayers with adjusted gross income of $15,000 or less ($30,000 or less for married-joint filers), effective with tax year 2009. [See JFC 221]

Senate – No change

Assembly – Deleted the Joint Finance provisions and instead provided an individual income tax exclusion for retirement income for each person aged 65 or older up to a specified maximum amount that would start in tax year 2009 and would increase each year. (Reduces GPR revenue by $5.5 million compared to JFC.) [See Assembly 34]

Real Estate Transfer Fees
Governor – Proposed to increase the amount paid by sellers in a real estate transfer from $3 to $6 per $1000 value transferred. It would also change the amount of the fee that the state keeps from 80% to 90% and would place the entire amount collected by the State into a new fund called the County Aid Fund.

Joint Finance – Voted 8-8 on provision 5, which would have removed the item from the budget. Defauled to Governor’s position. [See Paper 345]

Senate – No Change.

Assembly - Voted to reduce the rate of the real estate transfer fee from $3 per $1,000 of value transferred to $2 per $1,000 of value, and reduce the state share of the fee from the current rate of 80% to 60% while increasing the county share from 20% to 40% starting in 2010-11. In 2011-12 and thereafter, the fee would be reduced to $1 per $1,000 of value, and specify that the counties would retain 100% of the fee. [See Assembly 46]

Cigarette Excise Tax
Governor – Raised the cigarette tax from $0.77 to $2.02 and raised the tobacco products tax from 25% to 65.5% of the manufacturer’s established list price. This also changed the amount of the tax that distributors are rebated for administration costs are reduced from 1.6% to 0.7%. Change the refund to tribes for the excise tax on cigarettes sold on tribal lands to non-tribal members from 70% to 50%. All the collected money will be put into the Health Care Quality Fund.

Joint Finance – Approved the Governor's proposal to increase the excise tax rates for cigarette and tobacco products, but reduced the 1.6% discount on cigarette tax stamp purchases to 0.7%, and also estimated the sum sufficient funding for cigarette and tobacco products refunds to Native Americans. Also approved the creation of the Health Care Quality Fund for the deposit of collected revenue with the exception of $20,000,000 in cigarette tax revenues annually, which would be deposited to the general fund. [See Paper 376 JFC 260]

Senate – No Change

Assembly – Deleted the provisions that would increase the cigarette tax by $1.25 a pack, and the tobacco products tax from 25% of the manufacturer’s established list price to 65.6% of the manufacturer’s list price. Also deleted the provision that would provide that the resulting increased tax revenues (except for $20 million annually) would be deposited to a new segregated fund, the health care quality fund, to be used as a source of funding BadgerCare and medical assistance. These modifications:

reduce the general fund tax revenues by $20,000,000 in each year,
reduce segregated revenues from the cigarette tax by $237,500,000 in 2007-08 and $229,000,000 in 2008-09
reduce segregated revenues from the tobacco products tax by $18,200,000 in 2007-08 and $21,500,000 in 2008-09, and
reduce estimated GPR expenses for tribal refunds of cigarette and tobacco products taxes of $10,300,000 in 2007-08 and $10,200,000 in 2008-09.

Education Summary

Youth Apprenticeship Program
Governor – Provided $412,600 and $1,216,800, to increase funding for the youth apprenticeship program which is a two-year program that combines academic and technical instruction with mentored on-the-job learning for high school students.

Joint Finance – Adopted the Governor's recommendation, but place $87,600 and $116,800 by year in the workforce development general program operations appropriation and place the remaining $325,000 and $1,100,000 in the local youth apprenticeship grants appropriation. [See Paper 338 and JFC 728]

Senate – No change

Assembly – Voted to maintain the base funding of $1,100,000 annually for the youth apprenticeship program. This decreases the Joint Finance funding by $412,600 in 2007-08 and $1,216,000 in 2008-09, and 2.0 positions would be eliminated each year. [See Assembly 50]

Wisconsin Covenant
Governor – Created a Wisconsin covenant scholars program which would provide grants to eligible resident students based upon financial need.

Joint Finance – No change. [See Paper 463]

Senate – No change.

Assembly – Deleted the Wisconsin Covenant.

General School Aids Funding Level
Governor – Provided $79,319,200 in 2007-08 and $156,075,200 in 2008-09 for general school aids. General school aids include equalization, integration, and special adjustment aid.

Joint Finance – Approved the Governor’s provisions. [See JFC 541]

Senate – No change

Assembly – Provided $60,000,000 and $90,000,000 respectively for general school aids. Compared to the Joint Finance version of the budget, this would be a reduction of $19,319,200 in 2007-08 and $66,075,200 in 2008-09. [See Assembly 10]

School Levy Tax Credit
Governor – Created a property tax credit called the first dollar credit with a funding level of $ 100,000,000 annually and modify the existing school levy tax credit appropriation to include payments for the first dollar credit. The governor proposed funding of $593,050,000 and $693,050,000 by year.

Joint Finance – Made a slight modification to the Governor’s proposal with respect to timing and specified that the credit for individual properties would be determined by DOR. [See Paper 715 and JFC 547]

Senate – No change.

Assembly – Deleted the Joint Finance provisions relating to a new first-dollar credit and, instead, increase the current school levy tax credit distribution for the 2008-09 property tax year and for each year thereafter by $200,000,000, from $593,050,000 to $793,050,000. [See Assembly 11]

University of Wisconsin System
Governor – Provided adjustments to base budget of $45,707,400 GPR and $15,193,500 PR in 2007-08 and $47,163,000 GPR and $13,737,900 PR in 2008-09.

Joint Finance – Approved adjustments. [See JFC 681]

Senate – No change

Assembly – Reduced funding for eleven UW System GPR appropriations by a

total of $47,996,800 annually or 95,993,600. [See Assembly 21]

Milwaukee Parental Choice Program Funding Split
Governor – Modified the current law funding split for the choice program, beginning with the 2007-08school year. Specify that, for the first 15,000 pupils attending a school in the program, the current law 55% state/45% MPS split would apply. For all pupils above 15,000 attending a school in the program, the state would fund 100% of the cost of choice payments.

Joint Finance – Approved the Governor’s proposal. [See Paper 650]

Senate – No change

Assembly – Deleted the Joint Finance provision modifying the funding split for the Milwaukee parental choice program. Deleting this provision would increase the MPS aid reduction and the MPS choice levy by $8,923,500 in 2007-08 and $12,088,800 in 2008-09. Net state general fund expenditures related to the choice program would decrease by those amounts in each year. [See Assembly 11]