By Scott Bauer and Harm Verhuizen, Associated Press

MADISON, Wis. (AP) — Wisconsin’s projected state budget surplus is forecast to reach $7.1 billion by July, up more than half a billion dollars from the previous estimate just two months earlier, the nonpartisan Legislative Fiscal Bureau reported Jan. 25.

It is the largest budget surplus in Wisconsin history.

Democratic Gov. Tony Evers and the Republican-controlled Legislature are fighting over what to do with the money.

Republicans support moving to a flat income tax, a proposal that would result in the state collecting about $5 billion less a year in taxes. Evers wants a more modest $600 million tax cut targeting the middle class. He’s also called for spending more than $2 billion on K-12 schools.

Evers on Jan. 24, in his State of the State speech, unveiled nearly $1.5 billion in new spending proposals targeting mental health services, water pollution, affordable child care and workforce development. Republican Assembly Speaker Robin Vos declared most of them to be dead on arrival.

“We will continue to fund our core priorities and obligations while protecting Wisconsin’s checkbook,” Sen. Howard Marklein, co-chair of the Legislature’s budget-writing Joint Finance Committee, said in a statement reacting to the higher forecast.

He and committee co-chair Rep. Mark Born, also a Republican, reacted with caution to the unprecedented positive economic news.

They highlighted that the new report estimates tax collections to the state through June 2025 will be about $94 million lower than previously expected, and that the surplus was boosted by an infusion of federal pandemic relief money.

The Fiscal Bureau reported nearly 90% of the increase over November projections came from money that was set aside for specific purposes but went unspent, including $200 million for a failed attempt to kill Wisconsin’s personal property tax and $270 million in Medicaid funding that was replaced by federal funds.

Tax collections for the current fiscal year were also about $61 million higher than projected.

Evers will deliver his full two-year state budget plan in three weeks. The Legislature will then spend the next four months rewriting it before passing their own two-year spending plan for Evers to consider.

Harm Venhuizen is a corps member for the Associated Press/Report for America Statehouse News Initiative. Report for America is a nonprofit national service program that places journalists in local newsrooms to report on undercovered issues. Follow Venhuizen on Twitter.