At the Wisconsin Taxpayers Alliance, we are often asked what the next governor and legislature can do to fix permanently Wisconsin’s state-budget “roller coaster.” The state has flirted with deficits for years.
Two actions would go a long way. First, it is important to understand that the revenue projections used for budgeting are based on economic forecasts for the next two years and are subject to error. To avoid revenue shortfalls, budget experts recommend enacting state tax-and-spend plans with ending balances, or surpluses, sufficient to cover unanticipated tax shortfalls should the economy underperform.
Second, although it is common sense for households to spend within their means, elected officials sometimes spend in one year more than they collect in revenue. The danger is that one year’s gap between spending and revenues becomes an ongoing deficit problem.
What may surprise many is that Wisconsin already has laws on the books that address both problems. Unfortunately, lawmakers and governors routinely exempt themselves from one or both of these laws come budget time.
Ending Balances. In 1999, lawmakers gradually increased required ending balances (surplus) from 1% of general fund spending in 1999-2000 to 2.0% of spending in 2005-06. In every subsequent budget, lawmakers and governors “temporarily” exempted themselves from these requirements, allowing them to budget with relatively small ending balances. In years when tax revenues lagged expectations, deficits threatened.
Although the 2% requirement remains in state law, the 2013-15 state budget once again pushed forward its effective date to 2017-18. If history is any guide, the 2015-17 state budget will be passed with a relatively small ending balance, and the 2% requirement will once again be ignored.
Structural Imbalances. A structural imbalance occurs when spending exceeds revenues in a year. When this occurs, the state must draw on its savings (balances)—if it has any—to remain in the black. Since 2002, state law has not allowed the legislature to pass any bill—including a budget bill—that would cause a structural imbalance in the second year of a biennium. Yet, both the 2009-11 and 2013-15 state budgets were passed with second-year imbalances. Legislators simply included language in the budget bill providing that the relevant statute did not apply to the budget bills.
Here is one yes-or-no question voters might ask legislative and gubernatorial candidates: To help improve the state’s long-term fiscal position, will you require the 2015-17 state budget comply with these two often-ignored laws?