Here & Now

Jason Stein on the Scale of Wisconsin's 2023 Budget Surplus

Frederica Freyberg:

In a new report titled, “The Astounding State Surplus,” the Wisconsin Policy Forum research director says the projections of a $6.5 billion surplus are useful but far from certain. We check in now with Jason Stein for more on the implications for state spending and taxing. Jason, nice to see you.

Jason Stein:

Nice to see you.

Frederica Freyberg:

You’ve covered and researched Wisconsin state budgets for a while. As you saw these projections grow, did it surprise you?

Jason Stein:

Absolutely. I think when we think about two years ago when we were at this point, things did not really look that good for the state but then we had two very large federal pieces of legislation, the Consolidated Appropriations Act and then the American Rescue Plan Act that really juiced the economy. They shot state tax collections upward and despite inflation, the state really hasn’t spent a ton of that money. So that we find ourselves here with this really remarkable surplus.

Frederica Freyberg:

Here we are. The astounding surplus. We detailed and you just expressed some of the reasons that the state coffers are so fat like those COVID funds and an increase in sales tax revenue. But what kind of choices, then, do legislative budget writers make with this money?

Jason Stein:

Well, I mean they really have an unprecedented level of choice. Clearly, you’ve seen the governor and lawmakers talk about some sort of tax cuts, both the personal property tax is something that’s been mentioned as well as income tax cuts. I would stay tuned for both of those things. And then we have had a world where it’s 8% inflation and yet local governments and schools have seen fairly tight limits on their state and local funding. Now they have gotten federal pandemic funding but it’s also running out. I think one key question is does the state try and look at some of those issues at the local level and try and step in and assist the local officials.

Frederica Freyberg:

For sure we know that municipalities have been crying out for more shared revenue. Would now be the time perhaps both with one-time and more sustainable funding going forward?

Jason Stein:

Right. I mean there’s always options that state officials have. One thing that local officials have sought is the ability to levy their own sales tax. Cities and villages would be able to do that. The legislature, at least Republicans in the legislature, have been pretty reluctant to take that on. So to them increasing state aid to municipalities may seem like a compromise position. When we talk about the multi-billion dollar surplus we have, in year one of the budget, increasing shared revenue by even 10% would be something like $80 million and $160 million in year two. In a normal world, that’s a lot of money. But in the present circumstance, it is not as much as it typically would be.

Frederica Freyberg:

They’ve also asked for again this kind of sustainable funding mechanism and that would be like the local sales tax.

Jason Stein:

Right. You know, the state would have the option of even lawmakers who are concerned about raising taxes could combine a local sales tax with, say, income tax cuts at the state level and leave taxpayers at least in the state as a whole better off or paying lower taxes. But of course a sales tax is going to have more impact on people at the lower end of the income scale. It is more regressive. So there will be a lot of discussion about that, I think.

Frederica Freyberg:

Stepping back a little bit, what do you regard as the biggest need areas?

Jason Stein:

Great question. Again, schools have been at their state and local revenue limits have been frozen for two years. And so that’s something that — their federal pandemic aid is running out. That’s a major issue. You see at — in terms of public safety, you see actually cities and villages going to referendum asking voters to approve raising their own property taxes to pay for public safety. And you see in some communities that that happened in November, which is pretty new. You see school referenda for many years but not the level of other local government referenda. Those are two things that step out. We also have higher education. We have turnover within state and local governments and then we have infrastructure needs as well.

Frederica Freyberg:

We need a lot of money to do a lot of things as always in a state budget. But as we have pointed out, it is not likely to be smooth sailing between the governor and the Republican budget writers. For example on things like Medicaid expansion or as we’ve discussed, school funding.

Jason Stein:

Absolutely. So one thing to understand is Medicaid, which is the second biggest expense for the state healthcare, just to keep current services the same would be about three quarters of a billion dollars over the next two years. At the same time there is this opportunity to expand the program and pull in additional federal money through the federal Affordable Care Act and through the American Rescue Plan Act, like a billion and a half over two years. That’s something that the Republicans have turned down in the past. But I think there is also an unprecedented opportunity for horse trading in this budget. So even though you wouldn’t expect that to be on the table, perhaps it might.

Frederica Freyberg:

I doubt it. Jason Stein, thanks very much.

Jason Stein:

Thank you.