Budget surplus pushes Wisconsin's financial reserves to an all-time high. But how did we get here?

Wisconsin is sitting on a pile of cash.

The state government has a budget surplus projected to hit $6.6 billion for 2022-23. That does not include the roughly $1.734 billion currently in the state's rainy day fund, according to the Department of Administration.

And the future looks even brighter in future years with state general fund balances for 2023-24 estimated to be $8.4 billion and growing to $9.7 billion at the end of the 2024-25 fiscal year.

Governor Tony Evers, who was elected to his second term on Nov. 8, called the "unprecedented surplus" an opportunity to make "critical investments in Wisconsinites and the future of our state."

Republican Legislative leaders have said they don't want Evers to see the additional money as a "blank check" for state departments as he crafts his budget. Instead, they hope to implement tax cuts, invest in K12 schools, roads and local governments.

But how has Wisconsin amassed such a large fiscal cushion?

How did Wisconsin get the budget surplus?

While the governor's office and the state legislative branch would like to take credit for prudent financial planning it's the federal government that helped reduce state spending and boosted state revenues by enacting pandemic relief bills in 2020 and 2021.

Those bills - including the American Rescue Plan, The Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Families First Coronavirus Response Act - bolstered the state's economy, said Jason Stein, research director at the Wisconsin Policy Forum.

A Wisconsin Policy Forum report estimated state and local governments collected at least $19.9 billion in pandemic-related funds.

"The federal government took on unemployment costs, insurance spending, that otherwise the state might have felt the need to help out with," Stein said. "The federal government helped, to an unbelievable degree, on both the revenue side in terms of stimulating the economy and on the cost side with lowering existing costs and keeping the state from having to spend money."

Besides the federal stimulus money, Wisconsin is projecting state tax revenue increases in fiscal 2022-23 based on current state and federal tax laws:

• $744.2 million in state tax revenue increases in fiscal year 2022-23. That's a 3.6% increase over the previous fiscal year, for a total revenue estimate of $21.293 billion.
• $323.9 million in state tax revenue increase in fiscal year 2023-24; a 1.5% increase for a total revenue estimate of $21.617 billion.
• $855.1 million in state tax revenue increase in fiscal year 2024-25; a 4% increase for a total revenue estimate of $22.472 billion.

"You've had a state that was pretty aggressive about not increasing spending, cautious about school funding and extremely cautious about increasing local government funding," Stein said. "So that's part of having a strong budget position as well."

More:With $6.6 billion surplus, Republican leader Vos sees room for bigger tax cuts in 2023

Looking toward the future

Evers will deliver his budget address on Feb. 15. From there, the Joint Finance Committee will spend the next several months holding hearings with state agencies taking the budget apart piece by piece. And deciding how to spend the $6.6 billion in surplus funds.

Once the committee finishes its work, the Assembly and Senate will agree on a budget. The goal is to send it to Evers for passage by July 1.

Stein noted that without the federal covid funds, the state could have been facing the same fiscal cliff it was during the 2008-09 biennial budget process, when then-Gov. Jim Doyle had an estimated budget gap of $5.4 billion.

"During the height of the Great Recession from 2009 through 2011, Wisconsin made heavy use of federal ARRA funds, particularly for K-12 school aid and Medicaid," Stein said in a policy forum paper. "When those funds ran out, the state faced a difficult 2011-13 budget and ultimately cut state aid to schools and local governments substantially."

As state and local policymakers consider how to use this historic influx of federal funding, they would be wise to consider how spending plans may impact future budgets as well as the immediate needs that confront them, the policy forum notes.