New LFB Report Has a Mixture of Good and Bad Budget News, as Newly Passed Bills Add to the Deficit

In late January of each odd-numbered year, I nervously await the release of a Legislative Fiscal Bureau (LFB) memo that contains updated spending estimates for the current fiscal year and updated revenue estimates for both the current year and the next biennium. That memo was released this afternoon, and the news is mixed.

On the positive side, the closing balance for the current fiscal year is expected to be $54 million higher than the Doyle Administration calculated in November and December reports. On the negative side, the newly calculated balance doesn’t take into account shortfalls in Medicaid and a couple of other appropriations totaling about $178 million (including a $21.7 million shortfall for the Dept. of Corrections). Nor does it include the $200 million (plus interest) that the state needs to pay back to the medical malpractice fund, or the $58.7 million (plus interest) that Wisconsin owes to Minnesota after termination to income tax reciprocity agreement.

Feds Issue 2011 Poverty Level

The federal government recently released the 2011 Federal Poverty Income Guidelines, better known as the "federal poverty level." Wisconsin uses the guidelines to determine eligibility for a number of public assistance programs, such as BadgerCare Plus and child care subsidies (Wisconsin Shares). See the new guidelines on the WCCF website: Tables for Annual, Monthly and Hourly Earnings at Various Percentages of the Poverty Level. 

The new guidelines are 0.6 percent higher than the ones used in 2010, which were the same as the guidelines for 2009.

WCCF has posted updated tables, which we prepare each year, showing the federal poverty level for different sized families and translating the annual poverty level figures into monthly and hourly amounts:

Jon Peacock

BYOBD (Bring Your Own Budget Deficit)

If misery loves company, Wisconsin must be having a party. As painful as Wisconsin's budget deficit is, a new report by the Center for Budget and Policy Priorities (CBPP) shows that we are far from alone in having a daunting budget hole to fill.

At least 44 states are projecting shortfalls for fiscal year 2012, according to CBPP, totaling $125 billion. Wisconsin's budget gap in 2012 is about 13 percent of 2011's budget. That ranks Wisconsin 22^nd among the states, and below the national average of a budget gap of 20 percent. (There's a variety of ways to calculate the deficit, and CBPP relies on Wisconsin Budget Project figures that include several factors not taken into account in other approaches.)

Small Business Tax Credit Bill Gets an Overhaul

Would job growth in Wisconsin get a boost from a bill that would give roughly 250,000 “small businesses” tax credits averaging $145 each? That was one of the questions faced Thursday by the Legislature’s Joint Finance Committee (JFC) as it considered the Governor’s proposal (Special Session SB 7 and AB 7) to provide a new 15 percent tax break to small businesses or individuals with less than $500,000 per year of business income.

A January 17 PolitiFact article in the Journal Sentinel debunked Governor Walker’s claims that his proposed small business tax credit would benefit 98% of small businesses in Wisconsin and spur job creation. Although his initiative would have assisted a smaller portion of small businesses and sole proprietors than the Governor contended, a more significant criticism of his proposal was that it would spread the $40 million per year tax reduction too broadly, making it a very ineffective stimulus for job creation. In light of those sorts of concerns, the JFC passed a much different version of the bill Thursday, which creates a tax deduction of up to $4,000 per new job, and which is no longer limited to tax filers with less than $500,000 gross income.

Minnesota: Don’t Forget, Wisconsin, You Owe Us $59 Million

Just when most Wisconsinites were getting over our disdain for Minnesota for the sin of dressing Brett Favre in a purple uniform, the new Minnesota Governor added fuel to the fire by reminding Wisconsin that we owe Minnesota a $58.7 million payment as part of the termination of the income tax reciprocity agreement between the two states. Governor Dayton has cause to complain, but that doesn't make paying the money any easier.

Joint Finance Committee Approves Several New or Expanded Tax Breaks

The Legislature's Joint Finance Committee met today to discuss four bills that Governor Walker is pushing as part of his Special Session jobs agenda:

Wisconsin, I’m Ready for My Closeup Now

A growing body of evidence suggests that film subsidies are not a cost-effective means for states to promoting economic growth. The Center on Policy and Budget Priorities (CBPP) issued a report last month that declared tax credits for film production to be as ineffective as they are widespread. More than 40 states offer such credits, according to CBPP, despite the fact that these subsidies result in few high-quality jobs for residents, reward companies for production they might have done anyway, and don't pay for themselves.

Illinois Legislature Keeps All Options on the Table

The Illinois Legislature, facing a budget deficit of up to $15 billion, has approved a significant increase in individual income and corporate tax rates, according to news reports. The tax increases would expire after four years, and are accompanied by state spending limits. If the state breaches the limits, the tax rates revert to current levels, unless the governor declares a fiscal emergency. This Reuters article has more. Clay Barbour reports in The Capital Times that Governor Walker is planning what the article calls an "all-out marketing campaign on the Wisconsin-Illinois border."

Supermajority Requirement Would Limit Options for Dealing with Deficit

Governor Scott Walker has asked the Legislature to focus on a handful of proposals in the special session, including a bill (SS SB and AB 5) that would require the Legislature to have a two-thirds majority to increase individual income, corporate income, and sales tax rates. The supermajority requirement would not apply if a statewide referendum approved the tax hike. Click here to see the Fiscal Bureau analysis of the bill.

The Wisconsin Council on Children and Families (WCCF) has issued a statement describing how the supermajority proposal would tie legislators' hands in a time when we desperately need flexibility to deal with the state's revenue shortfall. The size of the budget hole demands we take a balanced and responsible approach to budgeting, rather than limiting the state's options for climbing out of the hole.

Will Recent Changes to Capital Gains Tax Be Rolled Back?

As policymakers contemplate how to create jobs in Wisconsin and how to finance state services and local aid, they might want to take a look at A Capital Idea: Repealing State Tax Breaks for Capital Gains Would Ease Budget Woes and Improve Tax Fairness, a new report issued by the Institute on Taxation and Economic Policy (ITEP).

The report makes a convincing case that tax breaks for income derived from capital gains decrease revenue at a time when the state already has a significant shortfall, disproportionately benefit the very best-off taxpayers, and do little or nothing to promote economic growth.

Governor’s Proposals For Special Session of Legislature

Governor Scott Walker called a special session of the Legislature this week to focus on a handful of proposals related to cutting taxes and reducing regulation. Governor Walker said that Wisconsin is in an “economic emergency” and that he seeks to “create a new, healthy, and vibrant climate for private sector job creation.”