Spotlight on the States: Wisconsin

Given the recent events in Wisconsin, we decided that the Spotlight on the States series should take a brief trip over to the Badger State.

Like the rest of the country, Wisconsin's state budget has certainly felt the effects of the recent economic recession. A report published by the Pew Center on the States in 2009 ranked Wisconsin's budget situation as one of the ten worst in the country, and pointed to the loss of one-eighth of its manufacturing workforce and 140,000 jobs as major contributors to its fiscal problems. The slow economy also drove down tax collections by 11.2 percent, which didn't help either.  

Previous Gov. Jim Doyle (D) and the state legislature began the 2009-2011 budget process facing a record $6.6 billion shortfall. They attempted to reduce the budget deficit by raising $2.1 billion in taxes and fees, reducing state spending and aid, and with federal stimulus money. As stated in the State of Wisconsin Annual Fiscal Report, published by the State Controller’s Office in October 2010:

"The impact of the nation’s worst economic crisis in decades continued to be felt in FY 2010. As in FY 2009, decreases in tax collections were met with increases in demand and need for assistance. In order to meet this challenge, state government spending was cut deeper than ever before. All state programs, with very few exceptions, were cut at least 1 percent from base. Many programs were cut by an additional 5 percent or more. State employees were directed to take 8 furlough days in each fiscal year of the biennium in addition to rolling back funding related to a planned 2 percent pay increase. School aid was cut by 2.5 percent, the first time this program has been reduced."

Today, Wisconsin faces a budget shortfall of $137 million (just shy of 10 percent of the budget) for the remaining fiscal year (which ends June 30) and a $3.6 billion shortfall over the next 2 years (six percent of the budget) in a $59 billion 2012-2013 budget. In an attempt to put the state back on a sustainable fiscal path, and more specifically to address this year's shortfall, newly-elected Gov. Scott Walker (R) introduced what he called a "Budget Repair Bill" last month. The bill requires government workers to contribute 5.8 percent of their salary toward pensions--which has sparked a back-and-forth about whether pension benefits are paid for by taxpayers or employees--and increases contributions to health care premiums from 6 percent to at least 12 percent. It also limits public employee collective bargaining rights, with the exception of police, firefighters, and other public safety employees, which is the provision that has sparked the current protests, as the unions are willing to accept the other changes. 

Nevertheless, Gov. Walker has said that enacting these reforms would save $30 million this fiscal year and thousands of state and local jobs. He also said that he could pledge there would be no layoffs or furloughs for state employees. This did not comfort the thousands of government employees who swarmed the state's capital, protesting that the Governor's budget bill is more geared to political ends than fiscal ones.  

In his March 1st budget address, (postponed from February 22), Gov. Walker outlined some of the details of his full proposal. The biennial budget balances the $3.6 billion two-year deficit and reduces the structural deficit--deficits even under normal economic conditions and full employment--by 90 percent, from $2.5 billion to $250 million. It also reduces overall state spending by $4.2 billion (6.7 percent) over the biennium. Other highlights of the legislation include:

  • $1.25 billion in reductions in aid to local governments
  • $834 million in reduction in aid to public schools
  • $80.6 million in tax cuts for FY 2012, including elimination of the capital gains tax for investors with long-term (5 or more years) investments in Wisconsin-based businesses
  • $500 million in Medicaid spending cuts through various reforms
  • $200 million in funding for the "public-private agency" the Wisconsin Economic Development Corporation
  • Various reforms to state agencies, including a 10% across-the-board cut to non-personnel budgets of most agencies and elimination of all positions that have been vacant for over a year

Gov. Walker also talked about the controversial Budget Repair Bill in his address, and said that the savings from the bill would more than offset the budget cuts to local governments, and that they would actually see an increase in revenues and savings of $150 million over the next 2 years if the bill was approved.  

The events surrounding the Wisconsin budget have started a serious debate across the country and even inspired similar protests in other states. This raises the question: Will closing fiscal gaps in Washington, DC and state capitals encourage bipartisan cooperation on solutions, or will we see more Wisconsins? Let's hope for the former.