From a fiscal perspective, Gov. Scott Walker and the Legislature will have a better starting point for the upcoming biennial budget than policymakers have experienced in over a decade.
Credit for an improved fiscal position is due, in large part, to actions taken by Gov. Walker and the Legislature last session. Other external factors, such as the evolution and pace of economic recovery, certainly impact state budget revenue and expenses, but those factors are also largely lining up on the positive side of the state balance sheet.
Consider the following:
Structural Deficit Eliminated: The current two year budget (2011 WI Act 32) was the first budget enacted in over 10 years that did not result in a built in structural deficit being carried forward into the next biennium. Wisconsin law requires that the two-year budget be balanced. It does not preclude enacting future spending or revenue reduction provisions that go into effect, or full effect, at some point after the given two-year budget cycle. Over the past decade, each two-year budget balancing act started with a significant hole; a structural deficit that had to be filled.
The Legislative Fiscal Bureau (LFB) measures general fund commitments on the books for the coming biennium in relation to revenue collection estimated for the current biennium; if the analysis shows future expenditures exceeding current revenue it is described as a structural deficit. The calculation assumes zero revenue growth or program changes in the next biennium and provides a snap shot of how much additional GPR would be needed to balance the next budget.
According to the LFB, prior to the last budget, the structural deficit for the preceding five budget cycles, starting with 2003-05, has averaged over $2 billion. The lowest structural deficit in the last ten years was $1.499 billion going into the 2007-09 biennium, with a high water mark of $2.867 billion going into the 2003-05 biennium. This coming session, the Governor and the Legislature will not be starting with a budget hole. The structural deficit was eliminated in 2011 Act 32. Spending promises for 2013-15 did not exceed current (2011-13) revenues. As enacted, the bill represented a structural surplus of $310 million.
Revenue Growth Exceeding Prior Estimates: The current two-year budget (FY 12 and FY 13) is on track to produce a larger surplus going into the 2013-15 biennial budget (FY 14 and FY 15) than previously estimated. On Oct. 15, 2012, the Department of Administration (DOA) issued its Annual Fiscal Report for FY 12. DOA reported that general purpose revenue (GPR) tax collections in FY 12 totaled $13.515 billion, $603 million more than collected in FY 11 or a 4.7% increase. The total is $127 million above prior DOA estimates and $217 million above the revenue estimates contained in the 2011-13 budget bill (2011 Act 32). Positive trend is expected to continue for FY 13 as well.
When the next two-year budget is built, the most current economic indicators will be used to project estimated GPR collections for the 2013-15 budget period. However, if the trend remains positive, state revenue growth in the range of 4.7% annually would generate in the neighborhood of $1.3 billion additional GPR for the Governor and the Legislature to work with this coming budget.
The improved budget condition simply means that Wisconsin has taken real measures to get its fiscal house in order. It does not mean the upcoming budget debate won’t be every bit as contested as prior sessions. The state budget is, after all, a taxing and spending plan that is revisited every two years to direct how roughly $66 billion dollars (all funds) should be distributed among varied and competing interests. It also doesn’t mean that all is rosy with the state budget going forward. The Medical Assistance Program, for example, is currently running an FY 13 deficit and the Department of Health Services (DHS) has estimated that it will need an additional $595 million GPR next session just to pay for cost-to-continue in the main MA Programs (Overall, DHS requested an additional $647 million GPR for next session.)
In the months ahead, the Governor will unveil how he proposes to address these and numerous other budget issues. His budget will be introduced in Joint Finance in late January/early February and the debate will begin, anew; this time from a decent starting point.
A Decade of State Budgets – Side Notes
- The state budget in 2003 (Act 33) totaled $52.15 billion (all funds) compared to the current budget (2011 Act 32) of $66.06 billion.
- The state budget is comprised of general purpose revenue (GPR) Federal Revenue, Program Revenue, Segregated Revenue and Bond Revenue. Over the past decade, the proportional mix has remained relatively the same. The GPR portion of the all funds budget, for example, was 43.9% in 2003 and almost identical in 2011 at 44%. Program Revenue and Segregated Revenue (combined) accounted for 25.3% of the budget in 2003 and 24.5% of the budget in 2011. Significant proportional differences occurred in Federal Revenue (24% in 2003 compared to 28.9% in 2011) and Bond Revenue (6.8% in 2003 compared to 2.6% in 2011).
- The 10 largest GPR programs in 2003 consumed an almost identical percentage of all GPR spending as the 10 largest GPR programs in 2011; 82.4% and 82.3% respectively.
- The six largest programs in 2003 are the same as the six largest programs in 2011, but the percent of total has varied. The top six and percent of total in 2003 vs. 2011 are: Elementary and Secondary School Aids (41.4% vs. 33.6%) Medical Assistance (9.4% vs. 13.6%) UW System (8.2% vs. 7.2%) Correctional Operations (6.4% vs. 6.9%) Shared Revenue (5.9% vs. 6.4%) School Levy Tax Credit (4.1% vs. 6.1%).
- Of the remaining four largest GPR programs in the top ten, Community and Juvenile Correctional Services, and, Judicial and Legal Services, continue to make the list in 2011 but at smaller funding percentages than in 2003. Public Assistance (#9 at 1.4% in 2003) no longer makes the top ten list, nor does Technical College System Aids (#10 at 1.2% in 2003). New top ten programs in 2011 that were not on the list in 2003 are Debt Service for Obligation Bonds (#7 at 3.4% in 2011) and Choice and Charter School Programs (#10 at 1.4%).
- The largest GPR program in 2011 was Elementary and Secondary School Aids, which was funded at $9.759 billion, or 33.6% of total GPR funding. Choice and Charter School Programs are currently #10 on the list, funded at $419 million over the biennium or 1.4% of total.
Source: Source information for all side notes taken from LFB budget documents.