State Ends 2021 With Record Surplus; Withholding Tables Updated; Bond Ratings Upgraded

The Wisconsin Department of Administration (DOA) announced October 18 that the state ended its 2021 fiscal year with a balance of $2.58 billion, a record surplus and more than double the $1.17 billion balance Wisconsin had at the end of the previous fiscal year. Wisconsin’s fiscal year ends on June 30. The budget numbers released by DOA were part of the agency’s Annual Fiscal Report on state finances.

Under state law, when the general fund ends the fiscal year with a surplus, a portion of that must be transferred to the state’s Budget Stabilization Fund, commonly referred to as the “rainy-day” fund, which is for emergency purposes. Given this year’s surplus, the state transferred $967 million to the rainy-day fund for a total balance of about $1.73 billion, more than five times the fund’s balance three years ago.

A memo from the nonpartisan Legislative Fiscal Bureau (LFB) on October 18 projects that the balance of the state’s general fund at the end of fiscal year 2023 will be $930.6 million. In June of this year, LFB estimated that state tax collections by the end of fiscal year 2023 will be $4.4 billion more than previously estimated, “based upon the strength of collections and the vastly improved economic forecasts for the remainder of this year and the next two years.”

State Will Update Income Tax Withholding Tables for 2022

On October 7, LFB released a memo explaining that the Department of Revenue (DOR) will update the individual income tax withholding tables, effective this coming January 1 for tax year 2022 onward. The 2021-2023 state budget cut income taxes by $2 billion, necessitating changes to the tax rates, brackets, and sliding scale standard deduction. LFB estimates that the update will reduce income tax collections by $709.8 million on a one-time basis in fiscal year 2022.

The memo notes that “a provision requiring DOR to similarly update withholding tables beginning January 1, 2022, was included” in the budget passed by the Legislature “but was vetoed by the Governor.” A press release from DOR advises employers to implement the revised tables no later than January 1, 2022.

Wisconsin’s Bond Ratings Improve After Fiscal Year 2021

It late August, Kroll Bond Rating Agency upgraded Wisconsin’s underlying bond rating to AAA, the highest rating available. It was the first time in almost 40 years that the state received such a rating from any rating agency. Wisconsin has also received an upgraded rating of AA+ from S&P Global Ratings and maintains Aa1 and AA+ ratings with Moody’s Investors Service and Fitch Ratings, respectively.

In raising Wisconsin’s rating, Kroll cited the state’s “substantial liquidity, evidenced by a near tripling of budget reserves over the past three years; continuing, healthy revenue growth, despite substantial tax cuts; and an ongoing, post-COVID-19 recovery, fueled by a mature and expanding economy and favorable business climate.”

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