Budget Reform - Shared Revenue

What Are They Talking About?

Jim Hough, HFO & Associates

January  2002

Much of the current debate surrounding the State's $1.1 billion deficit relates to whether part of the fix should include a reduction in, and ultimate elimination of, "shared revenue."  In addition to an approximate 11% reduction in state operations expenditures, the Governor has proposed to eliminate "shared revenue" payments to local governments over three years.  

"Shared revenue" payments currently amount to approximately $1 billion annually.  This number would be reduced to $300 million in 2002 and $465 million in 2003.  By using a one-time supplement from the tobacco fund, the net loss in each year would be $350 million.  In 2004, the shared revenue amount would be zero.  In the meantime, a blue ribbon commission would be appointed and directed to provide options for local governments prior to the complete elimination of "shared revenue.

"This paper is intended to help readers understand what components make up the State Budget and what is being talked about during the debate between local governments and the Governor.

By way of background, the State of Wisconsin's biennial (7/1/01 to 6/30/03) budget is $48+ billion.  That number is composed of $24 billion General Purpose Revenue (GPR), $11 billion Federal Revenue, $6 billion each of Program and Segregated Revenues and $2 billion from to Bonding related expenditures. GPR dollars are monies raised from state sales tax and state individual and corporate income tax.  On a percentage basis, the GPR money is spent as follows:  60% is returned to local governments in several forms of "local assistance"; 16% is in the form of payments made directly to or on behalf of individuals; 9% supports University of Wisconsin operations; leaving 15% to cover the cost of all other State Agency operations.

The General Fund appropriations for "local assistance" over the biennium amounts to $14,006,152,400.  That is broken down as follows:

• Elementary and Secondary School Aids                         $9,310,152,700

• Shared Revenues                                                          $2,048,639,400

• School Levy Tax Credit                                                  $938,610,000

• Community & Juvenile Correctional Services                    $594,335,300

• Technical College System Aids                                      $286,672,800

• Environmental Aid                                                         $250,379,200

• Community Options Program                                         $218,280,100

• Other                                                                           $359,082,900

 Many of us, including yours truly, have been guilty of lumping all "local assistance" under the heading of "shared revenue."  In fact, the "shared revenue" portion of local aids attributable to GPR, or monies raised by state taxes, represents 14.6% of all the monies returned to local governments under the broader category of "local assistance."  Clearly, the biggest chunk, 66.5%, of local assistance is in the form of K-12 school aids. This represents the State's commitment to fund 2/3 of the cost of elementary and secondary education in meeting its constitutional obligation to provide for education and as a property tax relief measure.