Budget Bill Heads to the Floor

After a marathon hearing that covered three of the biggest policy issues in the budget – medical assistance, K-12 education, and taxes – the Joint Finance Committee finalized its version of the 2013-15 budget.

Highlights

Medical Assistance

As Gov. Walker recommended, the JFC voted (12-4 along party lines) to reject federal funds for expanding Medicaid under the Patient Protection and Affordable Care Act (PPACA). Wisconsin is one of 15 states not planning on expanding its coverage despite the federal government’s commitment to paying for the full cost of the expansion for the first few years, rather than its typical 60 percent share.

Currently, the state’s BadgerCare program covers adults with children earning up to 200 percent of the poverty level, or $22,980. The budget would lower the eligibility cut-off to 100 percent of the poverty level, or about $11,490 annually. It is estimated that 88,500 individuals would lose MA coverage under this change. The current MA program also covers childless adults earning up to 200 percent of the poverty level under a federal waiver program that expires at the end of 2013. The waiver program includes an enrollment cap, which has resulted in a significant wait list. The budget would extend coverage for childless adults and eliminate the enrollment cap but would lower the cut-off to 100 percent of the poverty level. DHS estimates that 82,700 more childless adults would have MA coverage under the budget change.

Adults with children, and childless adults, who are no longer eligible for BadgerCare under the 100% cut-off would be eligible for federally subsidized insurance coverage on the federally facilitated exchange (FFE). If the federal exchange is not ready in October as scheduled, people will continue to remain eligible for BadgerCare under existing income guidelines until the federal exchange is up and running in Wisconsin.

A detailed analysis of the budget plan by the Legislative Fiscal Bureau found that many of the people now receiving BadgerCare coverage would likely go uninsured instead of buying insurance on the federal exchange. In turn, hospitals raised concerns that they would experience higher levels of uncompensated care. To offset those concerns and potential hospital costs, the JFC budget provides an increase of $73.5 million over two years in payments to hospitals ($30 million state dollars and corresponding $43.5 million in federal matching funds).

K-12 Education

The big news in education funding is the expansion of the voucher system statewide. JFC’s budget would allow students from families earning up to185 percent of the poverty level, or $43,567 for a family of four, to attend private and religious schools using a taxpayer-funded vouchers.
The amount of the voucher would increase to $7,210 for students in kindergarten through eighth grade starting in 2014 and $7,856 for those in high school, up from the current $6,442 per student rate. After that, increases in the voucher payment would be tied to how much per-pupil funding goes up for public school students.

The statewide program (outside of the existing programs in Milwaukee and Racine) is capped at 500 students in 2014 and 1000 in 2015, also no more than 1 percent of a single school district’s total enrollment could participate. If there are more students seeking slots in the program than allowed, the proposal would allocate the available slots by lottery. The slots would go to the 25 schools with the most applications, with each school getting at least 10 seats.

Only private schools that have been in operation since May 1 may qualify for the voucher schools program under the JFC proposal.

On the public side of the equation, state funding to public schools would increase $150 per-pupil in each of the next two years. The plan would cost $289 million over two years, with $231.5 million funded with state taxes and the rest with an additional $52 million in higher local property taxes and an increase in expected revenues from the state lottery.

Not included in the JFC budget was Gov. Walker’s plan to create a statewide voucher program for special-needs students and his proposed oversight board for authorizing new charter schools. Furthermore, the JFC budget cut Walker’s proposed $64 million of reward money for high performing schools.

Taxes

Income taxes would be cut by about $650 million over the next two years with changes in base levels and rates. The JFC budget changed the tax brackets from five to four and all the rates are lower than what Gov. Walker had originally proposed. The lowest bracket (income up to $14,330) is going from 4.6 to 4.4 percent. The second bracket will be $14,330 to $28,650 and will be going from 6.15 to 5.84 percent. The third bracket will be $28,650 to $315,460 and will be 6.27 percent. The upper bracket will be $315,460 and over. That is changing from 7.75 to 7.65 percent.

Beyond the income tax cut, significant other reforms, many proposed by Rep. Kooyenga, were adopted:

  • Federal depreciation and depletion rules were adopted, beginning Jan. 1, 2014, simplifying compliance by phasing comparable state rules out.
  • For small businesses, changes made to the Section 179 expensing provision by Congress will now automatically be adjusted at the state level, which hasn’t occurred since 2001.
  • Provisions governing net operating losses were also federalized, allowing losses to be carried forward up to 20 years and carried back for two years.
  • The R&D tax credit was extended to pass-through entities, allowing S corporations and LLCs to claim the credit in addition to C corporations.
  • If federal law is changed to allow the collection of state sales taxes on out-of-state retailers, specifically those online, the revenues generated from this source are automatically used to further lower state income tax brackets.
  • The economic development surcharge is eliminated for pass-through entities.
  • The state tax code has been updated to almost wholly reflect the Internal Revenue Code, leading to greater simplification.
  • A municipal fee appeal process was established to allow challenges to unreasonably high municipal fees to be brought to the state Tax Appeals Commission.
  • Allow appeals of sales and use tax determinations and manufacturing property assessments to be made in the circuit court of the county in which the taxpayer is located, owns property, or does business, rather than Dane County circuit court as current law requires.

The Committee also voted to eliminate a number of narrow business tax credits, limit the manufacturers tax credit to the amount of income or franchise tax paid on the income on which the credit is based, and reduce the amount of interest paid by the state on amounts owed to taxpayers by the Department of Revenue from 9% to 3%.

Other

Though the big three issues outlined above dominated the day’s debate, several other items were also passed by JFC, most in a single wrap-up motion (#999).

  • Designate kringles as the official state pastry.
  • Require the Wisconsin Center for Investigative Journalism to leave the UW-Madison campus.
  • Would create a five-year pilot program for bail bonding in five counties: Dane, Kenosha, Milwaukee, Racine, and Waukesha. In 2018, the system would automatically expand statewide.
  • Define the shoreline of Lake Michigan in Milwaukee.
  • WEDC – Shortly after the Audit Bureau’s report on WEDC came out, the JFC imposed many new requirements on WEDC and made some of its funding conditional. While most of the JFC’s changes are still in place, a number of them were further modified in the final day of JFC voting.
    • WEDC procurement provision passed earlier by JFC has been changed. Motion 999 deleted the requirement that WEDC follow state procurement policies. In its place, the WEDC board will now be required to adopt procurement policies and procedures. The policies must include when WEDC is required to publicly solicit proposals, how they will evaluate those proposals, and how they will assess any potential conflicts of interest.
    • JFC reversed their decision from earlier action to move the Brownfields Assessment Grant Program to DNR.
    • Each recipient of a grant or loan of $100,000 or more from a WEDC economic development program must submit to WEDC a schedule of expenditures of the grant or loan funds singed by the director or principal officer of the recipient that attests to the accuracy of the schedule of expenditures.
  • DNA Collection – Under a proposal previously adopted by JFC, anyone arrested on suspicion of a felony or a host of sex-related misdemeanors would be required to submit their DNA to law enforcement. Anyone convicted of any crime would also have to provide their DNA. JFC modified this proposal to limit the analysis of the DNA collected by requiring that: the arrest be made pursuant to a warrant; there be a judicial finding of probable cause; or the party failed to appear in court. If those conditions are not met, the collected DNA sample is to be destroyed without analysis.
  • Double Dipping – This proposal has been modified multiple times by JFC. The final proposal would require retired public employees wait 75 days before they could be rehired, up from the current 30 days. The proposal would also prohibit future retirees who are re-hired from collecting their retirement benefits as well as their paycheck, if they are working at least two-thirds time.

Reaction

State Senator Alberta Darling (R-River Hills) and State Representative John Nygren (R-Marinette) co-chairs of JFC, issued the following statement regarding passage of the state budget:

“Governor Walker outlined five priorities in his budget plan; develop our workforce, transform education, create jobs, reform government, and invest in our infrastructure. The Joint Committee on Finance took measures to protect and build upon those important priorities. The committee nearly doubled the proposed income tax cut, provided additional funding for education and expanded educational choices for students and parents statewide.”

“In addition, the Governor and committee made a serious commitment to mental health and helped protect the sustainability of state medical assistance programs; ensuring hundreds of thousands of more residents will have access to health care.”

“Our goal has been to deliver a budget that protects taxpayers and protects our families. The committee will now forward a budget to the full senate and assembly for consideration that is balanced on paper and represents a good balance of Wisconsin’s priorities.”

Senate Majority Leader Scott Fitzgerald (R-Juneau)

“Today was a win for the taxpayers of Wisconsin. The final motions passed by the Joint Finance Committee tackled the important issues, providing tax relief to all families in Wisconsin as well as giving parents the option to choose the best future for their child.”

“The legislature’s tax package that was passed by JFC nearly doubles the Governor’s proposal, amounting to nearly one billion dollars in tax relief in this biennium to families, individuals and businesses in all tax brackets in Wisconsin. This is a much needed tax relief that will ease the burden on small business, promoting job creation and allowing families to keep a little more of their hard-earned paychecks.”

“On top of tax relief for the state of Wisconsin, we were able to invest in the next generation in two big ways: increased funding to our public schools and giving low income families the ability to choose a better path for their children. Now underprivileged children have the opportunity to escape the cycle of underperforming schools and take control of their education without adverse effects to our public school system.”

“I am confident in the budget that has come out of the Joint Finance Committee and look forwarding to passing the budget on the senate floor later this month.”

Senate Democratic Leader Chris Larson

“In the wee hours this morning, while most Wisconsinites were fast asleep, Republican JFC members forced through a budget that hurts Wisconsin’s middle-class families. At 1:20 a.m., Senate and Assembly Joint Finance Committee members presented their extreme education agenda that expands taxpayer funded vouchers for private schools statewide while continuing to underfund community public schools. They also announced a tax plan that gives huge tax breaks for Wisconsin’s wealthiest, but only pennies to Wisconsin’s middle-class families who are struggling the most in Governor Walker’s lagging economy.”

“After the fewest Joint Finance Committee budget hearings since 1985, Republican JFC members failed to listen to the priorities of Wisconsin’s middle-class families. Had they truly listened, as my Democratic colleagues and I did at over 20 town halls, public hearings, and kitchen table discussions held across our state this spring, Republicans would’ve invested our kid’s schools, in providing primary healthcare and in creating good-paying jobs.”

“Make no mistake, the budget that emerged from the Republican controlled Joint Finance Committee at 6:00 in the morning to day is bursting with special interest giveaways and anti-middle class provisions. The biggest winners in the dark of night budget were those who could afford to pay lobbyists to be in the Capitol’s backrooms. Wisconsinites may have been asleep while Republicans turned their backs on them, but they won’t be asleep any longer.”

Assembly Democratic Leader Rep. Barca, and the Assembly Democrats on JFC, Rep. Mason and Rep. Richards released the following statement:

Leaving several of the Gov. Scott Walker’s most damaging budget proposals until the last day of Joint Finance Committee action, Republicans on the budget committee actually made the budget even worse for Wisconsin’s middle class.

In its final hours, Republicans spent hundreds of millions of dollars more on a tax cut, targeting even more money toward the wealthy and creating a statewide private school system wasting the taxpayers’ money by forcing us to pay for a private school bailout in addition to public schools. The Department of Public Instruction estimates that a statewide unaccountable private voucher school system could cost $1.9 billion annually.

“Late at night Republicans on the JFC took the terrible budget for the middle class that Gov. Scott Walker had put forward and unbelievably made it even worse,” Assembly Democratic leader Peter Barca (D-Kenosha) said.

In two massive omnibus bill votes, they took money from a surplus that was taken from classrooms of school children across Wisconsin last budget. Republicans, blaming a deficit, made historic cuts of $1.6 billion to Wisconsin public schools. Yet somehow they found plenty of money in that same budget to give $40 million more to private schools and billions away in tax breaks that will create a deficit.

“That funding needs to be returned first to the classrooms it was taken from,” Rep. Cory Mason (D-Racine) said. “School children all across Wisconsin are paying for a tax cut that primarily benefits the wealthy.”

Earlier in the day Republicans, on a party-line vote, passed a health care plan that will charge taxpayers more to cover fewer people on BadgerCare and could end up eventually kicking 29,000 children off their health care.

“In the past Republicans have claimed that health care should be cut because it was too costly – but taking the federal BadgerCare expansion money would save taxpayers more than $100 million,” Rep. Jon Richards (D-Milwaukee) said. “Denying families the security that comes from knowing they can see a doctor and not worrying they are one health scare away from financial ruin is cruel. Charging the rest of the taxpayers more to do so is simply inexplicable.”

Republicans are destroying key building blocks of the middle-class such as education, health care and job training, at the same time they have failed Wisconsin on job creation. Under the leadership of Gov. Scott Walker and a Republican Assembly and Senate, Wisconsin has plummeted from 11th to 44th in job creation. The state is also among the bottom states in short-term job growth, long-term economic forecast, wage growth and places to do business, according to such reliable sources as the Bureau of Labor Statistics, Forbes Magazine and the conservative US Chamber of Commerce.

Next Steps

The JFC crafted budget will now be taken up by each house of the legislature. Either house can further modify the bill, but there is no indication that either house has a strong desire to do so at this time.

After both houses pass the bill, it goes to Gov. Scott Walker, who can sign it as is or use his veto power to modify portions of the bill. The legislature then may attempt to override or accept the governor’s vetoes. The final product becomes the state’s budget for the next two years.

A video archive of all JFC hearings is available from WisconsinEye. WisconsinEye will also provide live coverage of the budget floor debates in the coming weeks.