(Reprinted from Wisconsin Economic Development Association (WEDA) newsletter, the WEDA Wire. It is an overview of economic development issues debated in the context of the 2001-03 Biennial Budget, Act 9, which was signed into law on Aug. 30, 2001.)

As with most state budgets, there's the good, the bad and even sometimes the ugly. The measure of a state budget is also not limited to what is in the final package. A final assessment must also include a review of proposals that were seriously considered (i.e. included in the Governor, Joint Finance, Senate, Assembly or Conference Committee Version) but not ultimately adopted.

 Among the "good" items that did not survive were changes to a single sales factor for determining corporate franchise and income tax liability and changes to utility shared revenue tax to provide incentives to local governments to host power plants. Sales tax on custom computer software was a "bad" idea that did not survive the final cut. Two "ugly" proposals adopted by the Senate, combined tax reporting and changes to the TIF laws, were rejected by the Assembly and Conference Committee. 

There was a mixed bag on mandated set asides that were added at several stages in the process. WEDA had urged the Governor to veto all set-asides in the Wisconsin Development Fund, Brownfields Grant Program, and the TEA Program. WEDA's veto requests were based on the integrity of the process and not on the merits or demerits of the respective projects. The Governor vetoed some, for the right reasons, but not all of the set-asides. WEDA also supported a 4.1% increase in the Wisconsin Technical College budget, based primarily on the need for training and re-training of our workforce. The Technical College System received neither a funding increase nor decrease.

Below is a detailed look at what transpired during the recent budget process involving many item of interest to WEDA members and includes most of the items in which WEDA played an active role. 

2001 Wisconsin Act 16 - Biennial Budget Bill

Governor Scott McCallum introduced his biennial budget bill (SB 55) on February 20, 2001. The bill was then referred to the Joint Committee on Finance, comprised of 8 Republicans and 8 Democrats. The Joint Committee on Finance reported the bill out of Committee on June 18 on a vote of 12-4. Next, the Senate Democrat Caucus established its position on the budget and passed the bill as amended on June 19 on a party line 18-13 vote. The Assembly Republican Caucus established its position on the budget and passed the bill as amended on June 29 by a vote of 61-38.

 A Conference Committee, made up of 4 Republicans and 4 Democrats was formed to resolve over 800 items of difference between the Senate and Assembly. Conference Committee Amendment 1 was developed by the Conferees and subsequently passed in the Assembly (75-24) and the Senate (25-8) on July 26. The Governor delivered his veto message and signed the bill on Thursday, August 30 as 2001 Wisconsin Act 16.

Summarized below are actions on items of interest to WEDA.

Taxes

Single Sales Factor. SB 55 contained a three-year phase-in to a single sales factor to apportion corporations' income to Wisconsin to determine corporate franchise and income tax liability.
Joint Finance - Approved with a delayed effective date to the next biennium.
Senate - Deleted the provision.
Assembly - Approved the Joint Finance version.
Conference Committee - Deleted the provision. No change to current law.

Sales Tax on Custom Computer Software. SB 55 proposed to make the sale of custom computer software subject to the sales and use tax. Currently, off-the-shelf software is subject to sales tax, however, customized software is not. Estimated fiscal impact $52 million.
Joint Finance - No change to Governor's proposal.
Senate - Adopted Governor's proposal.
Assembly - Deleted the provision.
Conference Committee - Deleted the provision. No change to current law.

Combined Reporting.
Senate - Adopted a provision requiring members of an affiliated group engaged in a unitary business to compute state corporate income and franchise taxes using the combined reporting method of determining income. Effective for tax years starting on or after January 1, 2002. Estimated fiscal impact $28 million in 01-02 and $70 million in 02-03.
Assembly - No provision.
Conference Committee - Adopted Assembly position. No change to current law.

Hub Airline Tax Exemption. Governor proposed an exemption from property and ad valorem taxes for all property owned by an air carrier company that operates a hub facility in Wisconsin, effective January 1, 2002.
Joint Finance - Adopted Governor's position with modifications, including a retroactive effective date of January 1, 2001. Also creates a sum sufficient GPR appropriation for making a transfer to the transportation fund, beginning on July 1, 2001 and on July 1 of every fiscal year thereafter.
Senate/Assembly/Conference Committee - No change to Joint Finance.
Governor - Signed into law.

Utility Shared Revenue.
Senate - No provision.
Assembly - Adopted a provision altering the utility shared revenue tax that would offer financial incentives to municipalities who agree to host new power plants.
Conference Committee - Adopted Senate position.

Economic Development

Technology Zones. The Governor proposed creating up to 20 technology zones to promote the development and expansion of high-technology businesses in Wisconsin. Up to $5 million in credits could be claimed in each zone for a total of $100 million. Each zone would be active for 10 years.
Joint Finance - Approved the creation of up to nine technology zones with $3 million in credits per year. Additionally, each zone created after the first three would need Joint Finance approval.
Senate - Deleted provision.
Assembly - Adopted a provision that would allow Commerce to create up to 18 technology zones as well as a technology zone in the City of Marshfield and one agricultural development zone. Commerce could not, however, create more than three zones without the approval of Joint Finance. Up to $5 million in credits may be claimed in each zone.
Conference Committee - Adopted a provision that would limit Commerce to creating nine zones all with Joint Finance approval. Also requires one agricultural development zone.
Governor - Vetoed the Joint Finance approval requirement. Signed into law the creation of nine technology zones and one agricultural development zone.

International Division. Governor requested funding for an international liaison position in the Department of Commerce's Division of International and Export Services.
Joint Finance - Deleted the provision and also deleted the funding and all positions for the entire Division of International and Export Services.
Senate - Adopted Joint Finance position.
Assembly - Restored the funding and positions for Commerce's Division of International and Export Services.
Conference Committee - Adopted the Assembly position with the requirement of a performance and financial audit of the Division by the Legislative Audit Bureau.
Governor - Vetoed the required audit by the Legislative Audit Bureau.

Tax Incremental Financing.
Senate - Adopted several modifications to the TIF law. The Senate included all of the recommendations from the Governor's TIF Working Group.
Assembly - No provision.
Conference Committee - Adopted Assembly position.

Milwaukee Development Opportunity Zone. Governor proposed a provision that designates an area in the City of Milwaukee as a Development Opportunity Zone. This provision would help retain a major national retailer's regional headquarters with 700 jobs at an average annual salary of $50,000 in Milwaukee. The maximum amount of tax credits that could be claimed by the businesses in the zone would be $4.7 million.
Joint Finance - Adopted Governor's recommendation.
Senate - Adopted a provision that provided that the tax credits in the Milwaukee Development Opportunity Zone that are claimed based on the partnership's company's or corporation's activities in proportion to their ownership interest may offset the tax attributable to their income.
Assembly - Adopted Joint Finance and Governor's position.
Conference Committee - Included the Senate provision and adopted a technical amendment to clarify that non-corporate businesses in the zone could claim tax credits in the zone.
Governor - Vetoed the Senate provision. Signed original intent into law.

Beloit Development Opportunity Zone. Senate - Adopted a provision that would require the Department of Commerce to designate an area in the City of Beloit as a Development Opportunity Zone that would exist for seven years. Any corporation that located and conducted economic activity in the zone would be eligible to claim the development zone tax credit. The maximum amount of tax credit that could be claimed would be $4.7 million.
Assembly/Conference Committee - Adopted Senate provision.
Governor - Signed into law.

Transportation

Transportation Facilities Economic Assistance (TEA) Program. Governor proposed an increase of $5.25 million SEG over the biennium for the Program.
Joint Finance - Deleted the additional funding to maintain the program at the base level of $3.5 million per year. Joint Finance required DOT to give priority funding to applicants who are willing to accept a loan for all or a part of the state share of the costs of the project. Also required DOT to allocate at lease 20% of SEG and any future loan repayment funds provided for the program to making loans.
Senate - Adopted Joint Finance position.
Assembly - Provided an additional $250,000 SEG annually to the program, increasing the base level of funding to $3,750,000 annually.
Conference Committee - Provided an additional $125,000 SEG annually to the program, increasing the base level of funding to $3,625,000 annually. Also included a provision that requires DOT to provide $410,000 from the TEA Program in January 2002 to Brown County, the City of Green Bay, and the Village of Ashwaubenon for costs associated with the CTH VK/Lombardi Avenue project. The provision also specifies that the current law requirements related to grants made under the TEA program, including the local matching grant be waived.
Governor - Vetoed the $410,000 set aside for Brown County, the City of Green Bay, and the Village of Ashwaubenon. Maintained Conference Committee funding level of $3.625 million annually. The Governor also vetoed the loan v. grant provision.

Marquette Interchange. Governor proposed creating a special appropriation for the Marquette Interchange of $133 million over the biennium.
Joint Finance - Increased funding to $160.6 million with a base level of future funding at $45.9 million annually.
Senate - Adopted a provision that required an interchange at Plankinton Avenue and that all work must be done on a 24-hour basis. Also required that 5% of the total amount expended annually be paid to minority businesses.
Assembly - Adopted a provision that would require DOT to design the reconstruction of the Marquette Interchange and I-94 in Milwaukee and Waukesha Counties to allow for expansion of capacity for vehicular traffic on those highways to meet the projected vehicular traffic capacity needs, as determined by DOT for 30 years following the reconstruction of those highways.
Conference Committee - Adopted the Assembly provision and the Senate provision as it related to the Plankinton Avenue interchange and round-the-clock work.
Governor - Signed into law.

Transportation Fund. 2001 Wisconsin Act 16 does not include any increase in gas tax or registration fees, both of which are the major revenue sources for the Transportation Fund. A Coalition of transportation stakeholders has been advocating "broadening the base" of funding for the Transportation Fund by dedicating growth in sales tax in the sale of automobiles, auto repair, etc. to the Transportation Fund. This would shift General Purpose Revenue (GPR) to the Transportation Fund.
Joint Finance - No provision.
Senate - No provision.
Assembly - Adopted a provision to transfer sales tax on vehicles to the Transportation Fund beginning in the second year of the next biennium (2004-05). Also, five separate accounts within the Transportation Fund would be created effective July 1, 2003. The five are state and local highways; public transportation; aeronautics; multimodal; and, operations.
Conference Committee - No change to Joint Finance.