Minnesota vs. Wisconsin- two fiscal paths, two very different results

Over the last 4 years, there have been numerous comparisons done between the economic and social fates of Wisconsin and our neighbors to the west in Minnesota (one of the best came from Lawrence Jacobs in the New York Times this time last year). While Wisconsin elected a Republican governor in Scott Walker and a GOP-controlled legislature in 2010, Minnesota elected a Democratic governor in Mark Dayton, and followed by giving the Dems control of their legislature in 2012. And while Wisconsin has been giving numerous rounds of tax cuts targeted towards the rich and corporate and cutting state funding for K-12 education, Minnesota chose to tax the rich, and using some of those funds to expand pre-K education. Minnesota also raised the state’s minimum wage to $8 an hour by this August, and up to $9.50 in 2016. By comparison, Governor Walker and the WisGOP Legislature refused to take up any bills to raise Wisconsin’s minimum wage, with Walker going so far as to say "I don’t think [minimum wage] serves a purpose."

And after nearly four years of these contrasts, there’s a pretty clear winner when it comes to whose policies have led to a better fiscal situation- and it is Minnesota. The Gopher State has two things Wisconsin does not have these days- a huge budget surplus and a large amount of reserves to handle an economic downturn.

Evidence of Minnesota’s fiscal strength was reiterated last Thursday, when the Minnesota Office of Management and Budget released their outlook for their upcoming biennial budget. Higher revenues and lower spending are slated to add more than half a billion dollars to the state’s balance sheet for this budget, which puts the next budget in great shape.

Higher Revenues, Lower Spending Generate FY 2014-15 Forecast Balance. Actual revenue and expenditures for FY 2014, combined with revised forecasts for FY 2015, increased the projected balance for the current biennium from $32 to $556 million. Forecast revenues increased $279 million (0.7 percent), while projected spending is $250 million (0.6 percent) lower. A $5 million increase in estimated stadium reserves offsets part of the gain.

New Law Directs $183 Million to Budget Reserve, Leaving $373 Million Budgetary Balance. Significant changes were made to the statute governing general fund budget reserves in 2014. Thirty-three percent of any forecast balance for the current biennium, determined each November, is to be deposited to the budget reserve until recommended levels are reached. The $183 million deposit increases general fund reserves to $1.344 billion.

FY 2016-17 Forecast Shows a Total of $1.037 Billion Available for Upcoming Budget. FY 2016-17 revenues are now forecast to be $41.880 billion, a 6.4 percent increase over the current biennium. Forecast current law spending is $41.243 billion, 4.8 percent above FY 2014-15. Both are lower than previous projections. The $373 million ending balance for FY 2015 now adds to the beginning resources for the next biennium –resulting in a $1.037 billion balance now expected for FY 2016-17, up from $603 million projected at the end of the 2014 session…..

Income Tax Receipts Improve FY 2014-15 Forecast, Contribute to Growth in FY 2016-17. Income tax receipts ended FY 2014 ahead of the February forecast, contributing $194 million of the $279 million increase in FY 2014-15 forecast revenues. Higher than previously expected increases in nonwage income more than offset lower wage growth for the remainder of the biennium. Income and sales tax receipts supply almost all of the tax revenue growth in FY 2016-17 over FY 2014-2015. Corporate and other tax revenues are expected to remain fairly flat.

Now compare that situation to Wisconsin, which had a $281 million revenue shortfall for FY 2014 after cutting taxes in 2013, and even Scott Walker’s own Department of Revenue estimates that we’ll have another shortfall in FY2015, and a $2.2 billion budget deficit baked into the next budget. And as I’ve mentioned in the past, the DOR has a rosy assumption of good revenues in FY2015 that is on pace to fall short, increasing the amount of the current budget deficit that has to be made up, and increasing the deficit in the 2015-17 due to the lower revenue base.

Also in contrast is the meager amount of reserves each state has. While the Wisconsin GOP is trying to brag about the meager $279 million that’s in our rainy day fund, Minnesota’s is nearly FIVE TIMES LARGER, and is adding another $183 million in this fiscal year. Wisconsin could have chosen to add more to the Budget Stabilization Fund earlier this year, but instead , decided to blow it all on tax cuts and related budget gimmicks, and suspended the rules requiring any extra funds to be aside.

So the Wisconsin vs. Minnesota story seems an instructive version of “what to do vs. what not to do.” Perhaps it would be prudent to follow the road of Democratically-run Minnesota, who invested in services and made the rich and corporate pay more of their fair share, and not follow the “cut taxes and wages and hope for trickle-down” methods in GOP-run Fitzwalkerstan, which have led to an exploding budget deficit due to budget shortfalls. And funny, not only has Minnesota been more fiscally sound than Wisconsin, they have also beaten us in job growth since Walker and Dayton both took office in January 2011 (private sector job growth is more than 40% higher in Minnesota than in Wisconsin), and in lowering unemployment (down 2.9% in Minnesota vs. 2.3% in Wisconsin).

As Scott Walker tries to take his act nationwide, maybe a few enterprising journalists could ask why Minnesota is doing so much better…and unlike the Wisconsin media, maybe they could interrupt Walker’s lame talking points with real data. The answers could prove quite illuminating (and likely eliminating) when we’re talking about the prospects of national office for Scotty.