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6/24/2011 11:09:00 AM
State budget wipes away structural deficit ... and lowers taxes
Bill still loaded with nonfiscal policy items

Richard Moore
Investigative Reporter

The new biennial budget approved by the Legislature and sent to Gov. Scott Walker last week doesn't raise taxes, doesn't raid segregated funds, and doesn't rely on one-time stimulus dollars but will still wipe away virtually all of the state's structural deficit.

Wisconsin has run multi-billion dollar structural deficits - the difference between expenditures needed to run state government and possible revenues under the tax structure - since the mid-1990s, when the state massively increased spending on Medicaid, schools and corrections.

According to the state Legislative Fiscal Bureau, Wisconsin will even have a little money left in the bank at the end of the two-year budget cycle, about $306 million if revenue estimates hold up.

That's the bottom line of the $66 billion budget. Not that the state won't end up spending more money. It will: State and federal spending will creep upward by $1.1 billion, or 1.8 percent, compared to the final budget under the administration of former Gov. Jim Doyle.

The Walker administration had factored in a 1-percent increase in the budget; another $154 million is due to higher estimated enrollments in Medicaid.

Nonetheless, the increase in spending is far less than the increase under Doyle's last budget, which saw spending jump by 6.2 percent. Doyle and the Legislature eventually raised taxes and fees by more than $2 billion and spent $3.4 billion more in federal stimulus money to cover a $6.6 billion shortfall.

Because of increased revenue projections, the Legislature this year is also repaying $235 million owed to the medical malpractice fund.

Gov. Scott Walker said this week he would make use of his veto-pen by "a fair amount" but he did not specify what provisions of the budget he might veto. His line-item veto makes the Wisconsin governor one of the nation's most powerful.

Savings and tax cuts

Walker and the GOP's bid to balance the budget without raising taxes is not a hat trick. The budget makes significant cuts in spending and borrowing to achieve the goal.

For instance, the Department of Health Services will trim Medicaid by a approximately $466 million over the next two years, while state aid to local school districts will decline by approximately $800 million. Officials say school districts will be able to make up the difference because of new contributions by teachers to pension and health benefit payments.

School districts with contracts in place will be bound by those contracts until they expire, however.

The state will borrow significantly less money than in the past, about $2 billion less overall. Among other things, the budget cuts bonding authority for the state stewardship program from $86 million a year to $60 million.

In addition, the budget imposes a true property tax freeze on school districts and local governments. Counties and municipalities will have to live with current levy amounts for two years - they can raise taxes only by the amount of net new construction, but that has been negligible - and after that can only raise taxes by 1.5 percent or the amount of net new construction, whichever is greater.

The budget does not raise sales or income taxes and actually reduces taxes by $24 million.

On the tax side, the budget would reduce income tax credits by $56 million for lower-income families with two or more children. Republicans say the benefit had become too generous to sustain. The Legislature would also freeze eligible income levels for qualifying for a homestead tax credit.

For businesses, a new capital gains tax deferral for investments in Wisconsin-based companies will cost $36 million over two years, while manufacturers and agricultural firms would gain a tax credit of approximately $129 million a year.

The GOP did not remove combined reporting requirements from the state tax code, but it did liberalize the tax treatment, amounting to a tax reduction of about $46 million over two years. The budget would also establish a sales tax exemption for advertising and promotional direct mail starting in 2013.


Nonfiscal policy provisions

While the budget helps to reshape the character of government spending, the character of the budget process itself remained unchanged, loaded with late-night votes, closed caucus meetings and nonfiscal budget items tucked here and there in the bill.

For example, the Wisconsin Credit Union League is asking Walker to veto provisions that would allow direct conversions of member-owned credit unions to shareholder-owned banks.

"The direct-conversion provisions subvert the interests of a credit union's full membership to that of a few who intend to own and profit form a stockholder-owned - and not member-owned - business structure," said Brett Thompson, president and CEO of the league.

Thompson said the provisions would allow for the direct charter conversion of a credit union to stock-bank with little meaningful notice requirements, no protections of members' voting rights and no requirement that any equity in the converted institution be returned to members.

Membership and deposits are increasing at credit unions both in the state and the country, and many say the trend is being driven not only by greater eligibility for credit union membership but by ever-larger banking fees.

However, banking officials counter that credit unions are non-profit and thus can offer more competitive rates and lower fees because they don't have to pay income taxes.

In any event, Thompson said, the provision was slipped into the budget without any consultation of credit unions and without any public debate or input by regulators.

Then too, this week, a bipartisan group of lawmakers is calling for Walker to veto a provision preventing brewers, distributors and any retail outlet that sells beer from owning a license to operate in more than one of those business categories. The state craft breweries say that will cripple their ability to expand and grow because they could no longer have a brewer's license and a distribution license.

The provisions were also inserted into the budget without public hearing.

A rare coalition of conservative Republicans such as Glenn Grothman (R-West Bend) and Pam Galloway (R-Wausau) and liberal Democrats such as Rep. Brett Hulsey (D-Madison) urged Walker to veto the measure.

"Wisconsin is known for its breweries, and allowing small craft brewers to own their own taverns will highlight their product," Grothman said. "This is the type of provision that should have been dealt with in a separate bill. It was complicated and the thriving craft brew industry did not participate in drafting this provision."

Hulsey said it was the wrong move at the wrong time.

"I am concerned that at this time of economic uncertainty we are sending the wrong message to these small growing businesses," Hulsey said.

Other measures inserted in the budget would weaken notice requirements to tenants living in buildings subject to foreclosure, and would loosen recent requirements on payday lenders.

Finally, the budget allows for limited expansion of the state's school voucher program to certain cities under specific conditions. Second-class cities (those between 39,000 and 149,999 population) that have 50 percent or more of their students eligible for free or reduced lunch could qualify for vouchers.

Richard Moore may be reached at rmmoore1@frontier.com.

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Reader Comments

Posted: Tuesday, June 28, 2011
Article comment by: Kay Samz

"The budget does not raise sales or income taxes and actually reduces taxes by $24 million.

On the tax side, the budget would reduce income tax credits by $56 million for lower-income families with two or more children. Republicans say the benefit had become too generous to sustain. The Legislature would also freeze eligible income levels for qualifying for a homestead tax credit."
Richard, how can you say it doesn't raise taxes. It just raised taxes $56 million of low income wage earners. That's how the Republicans at the Federal level explain their refusal to let the Bush tax cuts expire for the rich...it would be a tax increase. You can't have it both ways.
In other words, the Wisconsin Republicans and Scott Walker raised taxes once again on the backs of the poor and low income people while sending millions to their rich buddies and big business.
Plus, the harm this budget will do to our children and schools cannot be measured.

Posted: Monday, June 27, 2011
Article comment by: William Hunter

I wonder where all the Walker haters will be on reading this article. End of life as we know it? No. End of structural deficits and benefit packages that NEVER would have been received anyway as there is not enough money on earth to support them, yes. Sounds like responsible government with a capital R to any reasonable person.

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