LFB Releases Updated Revenue and Expenditure Projections

Last week, Legislative Fiscal Bureau (LFB) released updated revenue and expenditure projections for the current fiscal year (FY 2015) and tax collection projections for each year of the biennium (fiscal year 2016 and fiscal year 2017). In November, the Department of Administration estimated a $132.1 million shortfall in the current fiscal year. Recent analysis from the LFB estimates this year’s shortfall will increase from DOA’s estimate by $151.3 million – for a total projected shortfall in FY 2014-2015 of $283.4 million.

There are several reasons noted by LFB explaining the differences between the two estimates. First, LFB estimates tax collections for FY 2015 to be $173.5 million below DOA’s projections. Second, LFB estimates that revenue numbers will be $2.7 million less than assumed by DOA. Third, LFB projects net appropriations will be $24.9 million less than DOA’s estimates, which LFB notes is mainly due to a reduction of $18.5 million in debt service payments.

Another important factor is LFB and DOA did not include any tribal gaming revenues in their estimates, which is mostly due to the Forest County Potawatomi withholding their payment pending the governor’s decision on the Kenosha casino. Now that the governor denied the proposed casino, a payment is anticipated and could increase revenues. In an August 2013 memo, the LFB projected the state would receive $27 million in FY 2015 in gaming revenues.

In response to the LFB’s projections, the Department of Revenue (DOR) issued a letter to DOA Secretary Huebsch. DOR states that based on their analysis, LFB underestimated revenue collections in the current fiscal year by $99 million. DOR states that this variance is due to assumptions on the pace of tax collections, amount of anticipated refunds, and employment projections. This back and forth between the administration and LFB on the difference in estimates remains unresolved.

Under Wisconsin State Statute Section 16.50(7) once the Secretary of DOA determines authorized expenditures will exceed revenues by more than 0.5% of the estimated general fund, the secretary must notify the governor and legislature and submit a deficit mitigation plan. LFB’s $283.4 million projected shortfall meets this .05% threshold. In the November 20th memo, DOA Secretary Huebsch indicated that the shortfall would be managed prudently to ensure a balanced budget. After the updated estimate from LFB, two Democratic members of the Joint Finance Committee issued a letter to the secretary, requesting information on the administration’s plan to deal with the projected shortfall for FY 2015. With the governor rolling out his biennial budget next Tuesday, any looming shortfall for this current fiscal year will need to be addressed soon.

Tax collections for the next biennium

The LFB’s memo included an updated projection of tax collections for the upcoming biennium. Using a baseline economics forecast from IHS Global Insights, LFB projects positive revenue growth in the upcoming biennium. LFB estimates that in 2016 tax collection will be $15.15 billion, which is $110.9 million higher than DOR’s November estimate. In 2017, LFB estimates tax revenue will be $15.72 billion, an increase of $65.9 million from DOR’s estimate. Even with some additional tax revenue projected, this next budget will be tight and require a careful balance of the state’s priorities.