Welcome to the MacIver Institute's guide to the 2017-2019 state budget. This is your one-stop shop for all things related to the behemoth $76 billion taxing and spending budget bill.
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Walker rolled out his budget blueprint in February, heralding a budget plan built on the “Reform Dividend.” Six-and-a-half years of “common sense conservative reforms,” the governor said, have cleaned up the fiscal mess Republicans inherited in 2011, put the state back on the path to prosperity, and eased the tax burden on overtaxed Wisconsinites.
So Walker tapped into those dividends in laying out his $76.1 billion spending plan, $34.5 billion of that from General Purpose Revenue (GPR). That was an increase of 2.6 percent (base year doubled) and 1.3 percent (base spending) over the 2015-17 budget. The governor’s proposal called for $37.5 billion in spending in 2018 and $38.6 billion in 2019, including GPR, federal revenue, segregated funds and program revenue.
While mostly warmly received by Republican lawmakers, some fiscal hawks expressed concerns about the increased spending in Walker’s plan: $375 million in the first year, and $1.18 billion in the second year. Using Madison math, or the base year doubled method, that equates to a 2.6 percent increase compared to the last budget.
As promised, the governor came through with a generous increase in education spending. So generous, in fact, Department of Public Instruction Superintendent and potential 2018 gubernatorial challenger, Tony Evers, praised Walker’s plan as a “pro-kid budget.”
The 12-member Republican majority on the Joint Finance Committee approved an education spending plan that would have spent $639 million over the base, just $9 million less than what Walker had sought. Democrats said the massive increase wasn’t enough, but the final product boosts per pupil aid by $200 in the first year of the budget and $204 in the final year. In the end, the final budget increases state aids by over $636 million compared to current spending. At more than $11.5 billion over two years, the K-12 budget represents the largest state education investment in actual dollars ever.
Walker’s budget originally tied some of the additional per pupil aid to schools with the requirement that school districts certify compliance with Wisconsin’s Act 10. The governor’s proposal would have required districts to show that school employees are paying at least 12 percent of their health insurance costs and 6 percent of their public pensions. The Legislature removed the requirement, but school districts will have to report to the state the details of their employee health plans. That’s a big win for taxpayers. For the first time, the state will begin systematically tracking Act 10 savings.
School choice picked up some big wins in this budget. The finance committee upped open parental choice program enrollment by increasing the eligibility level to 220 percent of the poverty level, or about $53,460 for a family of four. Including the public school open enrollment program, about 95,000 students participate in school choice in Wisconsin, with the majority in the southeastern corner of the state.
The budget also removes barriers to the Special Needs Scholarship Program, a new program that allows children with special needs to participate in school choice. The spending plan increases the number of independent charter school authorizers – any UW chancellor and any technical college board will now be allowed to authorize new charter schools. More authorizers should translate to more charter school offerings, which is a victory for parents and students alike.
Walker excised a big education expenditure with his veto pen. The Joint Finance Committee budget called for increases in local property tax funding for low-spending school districts through the low revenue adjustment. Once implemented, that could’ve raised statewide property taxes by up to $23.2 million. The districts have long argued that since property tax limits were implemented in 1993, they have been at a disadvantage because they are now locked into their low spending ways forever.
“I am vetoing this section entirely because the result is a substantial increase in property tax capacity that school districts may exercise without voter input,” the governor wrote in his veto message. “In several school districts that would be eligible to raise taxes under these sections, referenda to exceed revenue limits already failed within the past two years. An increase in revenue authority from the state in these districts would circumvent purposeful, local actions.”
Walker used his veto pen to remove legislative language that watered down his change to rules for school districts using the energy efficiency adjustment. This program, established in the 2009-11 budget, allows school districts to increase their revenue limits by the amount they spend on energy efficiency projects. The Milwaukee Journal Sentinel noted that this exemption, the only exemption to property tax controls, has allowed schools to spend over $200 million without voter approval. In February, Walker proposed changing the rules so that school districts would first need to hold a referendum if they wanted to spend over their revenue limits.
GOP legislative leadership called the governor’s blueprint a good starting point, and then proceeded to tinker with and try to reshape the budget proposal, particularly on transportation.
Most Assembly Republicans continue to be unhappy with the level of borrowing used to pay for our transportation needs. When Walker did not propose a gas tax increase or any new transportation funding streams in his budget, Assembly Republicans objected loudly.
In stressing that every funding idea must be on the table in addressing Wisconsin’s disputed $1 billion transportation budget shortfall, Assembly Republicans backed gas tax increases and vehicle fee bumps to generate an enhanced and sustainable flow of revenue. The budget process ground to a halt for over two months.
In the end, the Joint Finance Committee approved $400 million in bonding, much closer to the original half-billion in borrowing the governor first proposed. The final bonding number got buy-in from a reluctant Assembly in large part because about $252 million of the money would go to the Interstate-94 north-south project, tied to the Foxconn Technology Group incentives package. Lest we forget, the budget was constructed amid a “once-in-a-century” economic development proposal, Foxconn’s plan for a $10 billion high-tech manufacturing campus in southeast Wisconsin projected to eventually create at least 13,000 family-supporting jobs.
To the dismay of southeast Wisconsin lawmakers, the funding package includes no new money for Milwaukee area super projects, reconstruction of I-94 between the Marquette and Zoo interchanges and finishing off the north leg of the Zoo.
Republicans on a party-line vote did away with what remained of Wisconsin’s Great Depression-era prevailing wage law. Finishing the unfinished business of the last session when the Legislature eliminated prevailing wage for all but state projects, the Joint Finance Committee has saved taxpayers from a system that artificially inflates wages on government building and highway projects. A previous study from the Wisconsin Taxpayers Alliance found that taxpayers could have saved as much as $300 million on construction projects in 2015 had the reforms been in place then.
The budget also eliminates 252 Department of Transportation positions, a move that thins a bloated state agency that has wasted so much taxpayer money.
When all was said and done, Walker won the great 2017 transportation battle, holding firm on no gas tax increases or general vehicle fee hikes.
Despite the ever-escalating cost of healthcare in this country, taxpayers here in Wisconsin received some good news earlier this year. Actual Medical Assistance program expenditures during 2015-17 came in at $325 million less than what was included in the previous budget because of lower-than-expected enrollment. Fewer Wisconsinites on MA is a good thing.
In a new round of reforms intended to help transition Medicaid recipients to employment and off government assistance, Walker’s Department of Health Services submitted a broad request to the federal Centers for Medicaid Services in June, asking the Trump administration for permission to implement a variety of reforms to the state’s Medicaid program – also known BadgerCare – including a drug screening requirement.
If approved, it will allow Wisconsin to screen those who apply for BadgerCare for drugs and, if necessary, require participants to submit to a drug test. If a recipient fails, he or she would have to enter a state-funded treatment program. If they refuse, they would be ineligible for BadgerCare benefits until they agree to enter treatment.
Walker has made welfare reform a priority throughout his tenure, and this state budget was no different. Pending final approval from the federal government, Wisconsin will become the first state in the nation to screen and drug test participants in the welfare-to-work program. Under this budget, the state will also expand work requirements for benefits programs to ensure that individuals receiving state benefits are building their own skills towards independence.
This budget also eliminates a significant benefits cliff in Wisconsin’s child care tax credit program that creates a disincentive for career growth. Under past law, if a recipient of Wisconsin Shares made just $1 more than the income limit, they would be automatically cut off from the program’s benefits. The budget reforms the program, creating a “ramp” to slowly reduce benefits over a certain point. Participants can now take gradual raises or promotions without the fear of losing child care benefits overnight if they make just a penny too much. That’s true reform, and it’ll make a positive impact on peoples’ lives.
This budget eliminates a tax. Let that sink in. The Badger State, which has long worn the Scarlet T of a high-tax state, has eliminated the state property tax, also known as the forestry mill tax. Taxpayers will save $180.5 million over the next two years – not enough that anyone will be able to retire tomorrow, but the powerful symbolism cannot be denied.
“Here in Wisconsin we are not only reducing taxes, we’re eliminating taxes altogether,” Rep. Dale Kooyenga (R-Brookfield), a member of the Legislature’s powerful budget-writing committee said. “You want to talk about history? We’re making history right here.”
Kooyenga also celebrated the end of the Alternative Minimum Tax, a kind of separate income tax that is taking a bigger bite out of middle-income filers. While its impact is smaller, north of $7 million a year beginning in 2019, the principle is powerful: lawmakers really can wipe a tax off the books.
An omnibus tax relief package authored by Kooyenga and Sen. Howard Marklein (R-Spring Green) takes a big bite out of Wisconsin’s antiquated and unfair personal property tax law. Small businesses have long had to pay local government a tax on the value of their equipment. The JFC bill exempts non-manufacturing machinery, tools and patterns from the property tax, unburdening business by a combined $74.4 million over the biennium. Democrats criticized the measure as ultimately drawing tax revenue away from local governments that will be forced to do the “same or more with less resources.” The partial repeal initiative, however, will be paid for through the creation of a state aid program administered by the state Department of Revenue.
Property taxes, for another two years, are expected to be lower for the typical homeowner in Wisconsin than they were when the governor took office in 2010. That amounts to $3,000 in savings for the owner of a median-priced home in the Badger State compared to the trend prior to 2010, according to the Walker administration.
And by the end of the newly signed budget in 2019, Wisconsin taxpayers will have received some $8 billion in cumulative tax relief over Walker’s tenure in office.
But small businesses’ gain, in part, was a loss to income taxpayers. Walker’s budget proposal called for $203 million in income tax cuts. He did so by reducing the lowest income tax bracket from 4 percent to 3.9 percent and the second-lowest bracket from 5.84 percent to 5.74 percent, while also widening the second-lowest bracket. The tax break would ultimately have benefited all Wisconsin taxpayers, who, regardless of income, pay those rates on at least a portion of their income.
As budget negotiations progressed it became increasingly clear that income tax cuts would have to be sacrificed for other priorities, not the least of which was the personal property tax.
The budget saves money for Wisconsin’s higher education students, too. It extends the University of Wisconsin System instate tuition freeze into its fifth and sixth years. Walker initially had proposed a 5 percent tuition cut, but the Legislature decided the $35 million price tag was too heavy. Instead, they put some of the money into need-based financial assistance.
Walker’s 99 vetoes are expected to save taxpayers a combined $87.5 million over the next two budgets. More important, the governor removed some very unconservative provisions, many of which slipped into the budget at the last minute.