Marisa Wojcik:

Welcome to Noon Wednesday, I’m Marisa Wojcik, a multimedia journalist with Here & Now on Wisconsin Public Television. So the midterm elections are over, and lots of promises were made on the campaign trail. And so now we’re looking a little bit ahead. Starting in 2019, we’ll be looking at a new budget for the state, a two-year budget. And the Wisconsin Policy Forum has done a little bit of number crunching and figured out what that roadmap might look like heading into the ’19-’21 budget years. So Jason Stein is the Research Director for Wisconsin Policy Forum, and he’s going to tell us a little bit about this. Thanks so much for being here.

Jason Stein:

Well, thank you, Marisa, for having me.

Marisa Wojcik:

So to start, the number 2.2 billion is what people are really looking at in terms of your analysis, and that is the revenue required to just provide maintenance and some reasonable increases to K12 schools, Medicaid, and other state programs. And do you think that’s achievable?

Jason Stein:

Right, so let’s back up for just a second and say it’s obviously a big number. It’s not to make anybody panic. The number is there to just make people think, and it doesn’t mean that there couldn’t be tax cuts. It doesn’t mean that there couldn’t be spending increases. But it does mean that there’s prioritization that needs to happen, setting of priorities. And so we can talk a little bit about how we, maybe if we talk a little bit about how we get to this number, then I could also talk about is it realistic that we can get to this number? The 2.2 billion includes the cost to continue for Medicaid health programs for the needy. Over the next two years, it includes a $620 million increase for K12 schools, which is the same amount that they got in the current budget, and then it includes 1% a year increases for all the other state programs, like UW System, state prison system, the bureaucracy, all those other programs. Plus, finally, it also includes the commitments that are made in state law to either increase spending or cut taxes that have already been committed to by the state for the next two years. So that’s how you get to that number.

Marisa Wojcik:

And so this analysis was based on no matter which lawmakers were elected into office and who was elected governor.

Jason Stein:

Correct, we did not attempt to delve into all the details of either candidate’s proposals for the budget in part because we really didn’t have all the details. So that I think, in some ways, it might have been misleading to say, oh, okay, we have Governor Walker, we have Governor-Elect Tony Evers’ budget here. Because, really, there’s a lot of unanswered questions that we need to have before we can really say how all those budgets might work.

Marisa Wojcik:

And so the $621 million projection for K12 schools over the next two years, that doesn’t include what Tony Evers was promising. He said he wanted an additional 1.4 billion for K12 schools.

Jason Stein:

Correct, he wanted 1.4 billion in total, which would be something like $800 million more than we’re including. And, obviously, these are a set of assumptions that we made. You could put in amounts that are higher or lower for some of these programs, and you could defend that. So obviously, if you put in a higher number for K12 schools, then that is potentially going to increase the amount of taxes and fees that you would have to take in either through the economy growing or through state officials actually increasing those, voting to increase those taxes. And there are some other things that the governor-elect wants to do that might make it easier to balance the budget, and we can talk about those. But clearly, you would need very strong growth in state revenues to meet that goal.

Marisa Wojcik:

What are some of those things that Governor-Elect Evers would have to do in order to balance the budget, ’cause that’s going to have to happen no matter what, even without some of his extra promises for increases.

Jason Stein:

Sure, so first, he has talked about accepting money under the federal Affordable Care Act, additional money for state Medicaid programs. That could bring in potentially several hundred million dollars over the course of the state budget that would help to address some of the revenue challenges that we’re describing here. At the same time, the Republican-held legislature has said, pretty clearly, that they do not want to do that. So it’s unclear whether or not the state would achieve that in the next budget. One other area where the governor-elect differed from the current budget, or from the current governor, is Governor Walker has said if he increased revenues for the state transportation fund through the gas tax or vehicle registration fees, that he would want to lower other taxes, and whereas Governor-Elect Evers has not said he wants to do it that way. So that would be potentially some additional savings, or at least some additional costs that the governor-elect might not have in his budget that the current governor would have.

Marisa Wojcik:

And you mentioned transportation, and that was a big part of the narrative during the campaign trail. But that isn’t in your analysis directly. Why did you leave that out?

Jason Stein:

This looks at just the state’s general fund, which is its main account that it does most of its, most of the taxes go into that account, the income and sales tax and most of the spending on healthcare and education is done out of that account. And so because the transportation fund has its own set of expenses and revenues, we set that aside and looked just at the state’s main account.

Marisa Wojcik:

And there is a footnote in your analysis, and it says a lot of people think that taxes are going towards bureaucracy, but there’s a reason why you looked at K12 schools and Medicaid specifically; why was that?

Jason Stein:

Sure. Most of the money that state governments spends, it passes along to either individuals or to schools and local governments. So the state’s two biggest programs aids to K12 school. That is money that is not ultimately spent by the state, it’s spent by the local school districts. The same with Medicaid. Those dollars flow to hospitals, clinics, nursing homes that spend that money to provide care to individuals at or near the poverty line. And then, lastly, aid to local governments like cities and counties is also one of the top five or six state programs in terms of spending. So yes, a lot of the money that the state spends is not on what you might think of as their bureaucracy, on state workers, on state buildings. It’s for other programs around the state.

Marisa Wojcik:

And K12 schools is more than 50% of the–

Jason Stein:

It certainly, if you look at K12 schools and local governments, roughly half of the spending that the state does on that. Medicaid is not as big, but Medicaid also grows very fast. It’s typically grown at nine or 10% a year. And when it is such a big program, again, in this budget, we’re looking at 496 million over the next two years just to maintain what Medicaid does. And so when you’re talking about a half a billion dollars in new revenue just to tread water, that then makes it very difficult for elected officials to find money for the university system where we’re sitting and all the other programs within the state government.

Marisa Wojcik:

But on the flip side, something that’s not always palatable to people is raising taxes. But is that a reality that people might have to accept if we do want to see these programs being funded at their, at least, maintenance level, if not increased?

Jason Stein:

Right, so I guess what I would say is that what will need to happen, clearly, is some setting of priorities. So this budget is not at all as difficult as the budgets that we saw in 2009 or 2011 in the state. This is a budget that can be managed. At the same time, there’s a finite amount of resources within the budget. And so policymakers may not be able to do everything that they want to do. And so one of the questions is, clearly, if you wanted to do a funding increase for schools at the $1.4 billion level, that would be a situation where you would have to either cut spending on other priorities or shift spending in other areas or look at additional tax revenue or fee revenue you could raise because yes, that would be a difficult priority to meet while still meeting all the other things that the state is seeking to do.

Marisa Wojcik:

And even in the last election, we saw a lot of school districts asking their local citizens to raise their property taxes in order to fund schools more. So maybe there is an appetite for some tax increases. But Evers has also said he wants to cut taxes for the middle class by 10%. So seems like there’s–

Jason Stein:

Right, right. Now he has said that he wants to offset that tax cut by repealing the manufacturing and Ag credit that goes to farm and factory producers. That would cover a lot of his 10% cuddle. That doesn’t appear it would cover all of the 10% income tax cut. But yes, in terms of school referenda, we did school referenda pass at record rates in 2018, and so that will be, I think, a source of pressure on state officials to provide at least some increases in education in the next budget. To give you a sense of how difficult it might be to meet some of these priorities, when I say we put in 1% for all state programs outside Medicaid and K12, that’s about a quarter of a billion dollars, 250 million, over the next two years. And if you look at just what UW System and just what the prison system would like, are requesting from the new governor in terms of money, that would more than take up that entire amount without any other money for any of the other state programs. So that gives you a sense of the challenges that elected officials will face. And, of course, that’s what we elect them to do, is to set those priorities.

Marisa Wojcik:

So just this morning, the Joint Finance Committee was meeting about Kimberly-Clark tax incentives. And we’ve already passed these Foxconn tax incentives. How much is that a strain on either the Wisconsin taxpayer or on our state budget?

Jason Stein:

Well, so there’s a couple answers to that question. Long term, the Foxconn deal would be a significant financial factor for the state, the refundable tax credits that will go out to pay for, to help incentivize that factory in Racine County. We did include the spending and the new tax revenues that would come in from Foxconn over the first two years. That’s included in our calculation because we use something from the nonpartisan Legislative Fiscal Bureau that estimated all those amounts. Over the next two years, Foxconn, the expected tax credits versus the expected tax revenues are not expected to cost the state a lot more. It’s more in some of those out years. So yes, it is in here. Over the next two years, it’s not as big a factor expected to be. After that, yes, it starts to become a significant factor.

Marisa Wojcik:

It starts to become bigger and bigger.

Jason Stein:

Yep.

Marisa Wojcik:

So we have a Democratic governor and a Republican legislature, and formerly you covered the legislature for many years for a couple of different papers.

Jason Stein:

Did do a little bit of that.

Marisa Wojcik:

A little bit. So based on your experience, how difficult is it going to be for a budget to be acceptable from all parties?

Jason Stein:

I think it’s very difficult because both parties are starting out so far apart, just on the issue of accepting additional federal Medicaid funding. Democrats have, and the governor-elect, have said very strongly and clearly that that is something that they want to do and they feel like that is something they need to do to pay for the priorities that they have. And Republicans have taken many votes in which they have refused to do that already. And the leaders, Assembly speaker Robin Vos and others have said, very clearly, that they do not want to do that. So there, and that’s something that policymakers from different parties have agreed on in some other states. And even on that issue, there seems to be a difference that is difficult to reconcile if you can reconcile it at all. And then if you look at many other issues, K12 funding, taxes and tax cuts, the Foxconn issue, there seems to be a lot of differences that will be difficult to bridge.

Marisa Wojcik:

So from this analysis that you did now and then fast forwarding to 2019 when we’re looking at some potential budgets, how different is this going to be from what we might see in 2019? Is there going to be a wide variety based on what Evers proposes based on what Republicans in the legislature propose?

Jason Stein:

Sure. I think, clearly, the governor and the legislature will do many, many things that will be different from this. This is a very simplified exercise that we did here to try and, again, not say this is how the budget is going to go so much as get people thinking about how the budget can and should go. And I think one other thing that it’s probably worth pointing out is we’re not attempting to predict the direction of the economy. So as you ask about, well, what is the next two years going to look like, that is a huge factor. If the economy continues to grow, then tax revenues have grown by almost 3%, even after a series of tax cuts, since 2012. We only would need, in the first year of the budget, 3.8% revenue growth to cover the commitments that we talked about here and then 5.3% in the second year. So it’s really in that second year that, if the economy continues to grow as it has been, the first year is pretty manageable. The second year is more difficult.

Marisa Wojcik:

And to put that into perspective, your analysis said that, since 2012, that tax increase has been about 2.9–

Jason Stein:

2.9%. Right, and that’s even after a series of tax cuts, so it might’ve been somewhat higher if not for those tax cuts. But, then again, looking at it, that’s under an economy that’s been expanding. At some point, the economy will go into recession. We don’t know when that is; we hope it’s not any time soon. But that’s not something that anyone can predict with much certainty. So that is always a major caveat to think about. And that’s one reason why some people argue for budgeting carefully, because there’s always things that are unforeseen.

Marisa Wojcik:

Well, thank you so much for giving us a little bit of context on this. It’s obviously a very complicated thing to wrap your head around, and so we appreciate you being here today.

Marisa Wojcik:

Thank you, Marisa, it’s good to be here.

Marisa Wojcik:

For more from Here & Now and Wisconsin Public Television, you can join us at wpt.org, and thanks so much for joining us on Noon Wednesday.