Wisconsin Falls $281 Million Short on Tax Collections

Aug. 28–MADISON — State tax collections fell short of expectations by $281 million last year, providing potential difficulties in the future for the state budget and immediate fodder for this fall's tight governor's race.

If the state doesn't make up this missing money by June 30, 2015 — either through higher-than-expected tax revenue or lower-than-expected spending going forward — the state budget would be $115 million in the red by next summer. These figures do not include a $25 million payment that the Potawatomi tribe is withholding from the state because of a casino dispute.

For now, the state's rainy day fund has enough money — $280 million — to cover the lagging taxes, though Gov. Scott Walker and lawmakers would have to pass a law to use it for that purpose.

A spokeswoman for the GOP governor said he and the Legislature would ensure that the 2013-'15 budget is balanced when it closes — an obligation required by the state constitution.

“As we have done in the last several years, we will continue to manage the Wisconsin taxpayers' money well and keep the state's fiscal house in order,” Laurel Patrick said in an email.

But Walker's Democratic opponent, Mary Burke, pounced on the news, saying it showed she was right earlier this year when she questioned whether Walker and GOP lawmakers were cutting taxes beyond what was financially prudent.

“It's not working. Governor Walker's approach has us lagging on jobs, and in increasingly poor fiscal shape. With the state already projected to face (a 2015 shortfall), today's news from the Department of Revenue exposes once again how fiscally irresponsible Governor Walker has been,” Burke said in a statement.

The state Department of Revenue and the Legislature's nonpartisan budget office Thursday each released tax collections for the fiscal year ended on June 30, showing that the state collected $13.95 billion, down 2% from the tax projections of $14.23 billion that were built into the current 2013-'15 budget. The tax revenues also came in nearly 1% below the actual amount of $14.09 billion that the state took in last year.

For the first year, the 2013-'15 budget remains balanced, but in a two-year budget it's the second year that counts.

Lagging revenues this year also could have a ripple effect into future years because state leaders had been counting on revenues to keep growing at a modest rate rather than shrinking. For instance, before the release of these numbers, the state already was projected to spend $559 million more out of its main account next year than it has budgeted to take in.

The challenge of a slow growth rate in the early year of a budget is the same for the state as it is for any worker given a low starting salary — it provides a small base that can hinder future growth in income. For instance, a 2% raise comes to $400 for a worker with a $20,000 salary but adds up to $600 for a worker making $30,000 a year.

But it's not yet clear where the state budget stands overall. That's because state spending may still come in above or below budget projections.

For instance, a June report by the Department of Health Services said that the state's health programs were currently projected to have a shortfall of $93 million and that the agency was taking steps to reduce it. But the state has spent $21 million less than expected in compensation to its employees as of June, partially offsetting that.

Walker's administration is expected to provide a fuller picture of where the overall budget stands in an Oct. 15 report.

Walker and GOP lawmakers passed a more than $500 million tax cut bill in March, and the effects of those tax changes are already starting to hold down how much income tax is being withheld from workers' paychecks.

Assembly Speaker Robin Vos (R-Rochester) focused on that in an optimistic statement that dismissed the projections as manageable. “We will continue to be good stewards of taxpayer dollars and manage the state finances with a conservative approach,” Vos said.

Sen. Bob Jauch (D-Poplar) said Vos and Walker were living in a “fantasy land” where tax cuts led to economic growth that always was enough to provide a net increase in tax revenues. “Scott Walker has no one to blame but himself,” Jauch said.

Because of the imbalance between the state's expected tax revenues and its budgeted spending as reflected in current state law, the coming 2015-'17 budget has a projected shortfall, the Legislative Fiscal Bureau has previously reported.

Estimates for the two-year shortfall — not counting lagging revenue revealed Thursday — come to $642 million.

—————-