Clouds on the state budget horizon?

A recent report from Wisconsin’s Department of Administration highlights the major challenges Gov. Scott Walker (R) and state legislators face as they begin work on the 2017-19 state budget.

The so-called “November 20 report,” which summarizes the state’s financial conditions as the governor begins work on the biennial state budget, shows the following potential trouble spots:

  • Projections for general fund tax collections continue to lag. Revenue growth for 2016-17 was initially projected at 3.8%, but has now been reduced to 2.3%. The 2017-19 forecast projects growth of at most 3% annually.
  • The ending balance for fiscal year (FY) 2017 is $104.8 million, or just 0.6% of net appropriations. This is equivalent to roughly two days’ worth of state spending.
  • Although the report notes that the $330 million opening balance (or surplus) this year was “the fourth-largest opening balance in 16 years,” a better measure would be to compare surpluses to spending. As a share of total expenditures, the projected ending balance is the smallest in seven years.
  • FY 2017 expenditures are projected to outpace ongoing revenues by $226 million. The gap does not include an accounting “trick” that pushes funding of about $100 million in school levy credits into the next fiscal year.
  • As for the pending 2017-19 budget, two agencies account for nearly all of the new spending requests: $447 million, mostly school aids, from the Department of Public Instruction and $336 million from the Department of Health Services.
  • The November 20 reports also touts the status of the state’s Budget Stabilization (“or rainy day’) fund, which should be viewed with caution. The fund has $280 million in it, but no new deposits have been made in the past three years.

A new report from the National Association of State Budget Officers also points to more clouds on the horizon for state budget-makers nationally. Revenue growth slowed in 2016, and half of the states have suffered revenue shortfalls since the start of the fiscal year. Nineteen states have already enacted mid-year budget cuts in response.

The NASBO report adds that, unlike Wisconsin, even in the face of increased budget pressures for health care education, and infrastructure, “most states continue to strengthen their rainy-day funds, with 29 states making deposits into these funds in fiscal 2016 and 26 states projecting increases for the current fiscal year.”

Click here for a free copy of full WISTAX analysis of the upcoming budget challenges.

Click here to read a summary of the NASBO report.


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