It started from reading this post from the Wisconsin Budget Project, which noted that the state’s Homestead Credit accounts for less and less in terms of purchasing power, even if low-income Wisconsinites are able to qualify.
The annual DOA budget report, which was released last Thursday, shows that spending for the credit dropped again in the 2014-15 fiscal year and was 9% below the anticipated amount. A major reason for the decline is that the formula for determining eligibility and the size of the credits is not adjusted annually for inflation. The practice of indexing the Homestead formula was ended in 2011, even though almost all the other significant elements of the state tax code are annually adjusted for inflation.
Thanks in large part to that change, fewer people meet the income eligibility standards, the value of the average credit is declining, and the total value of the credits has declined by almost 25% since 2011. The following chart illustrates the 31% decline in the value of the credits since FY 2005, based upon the inflation adjusted amounts.
In addition to the value of the credit going down due to inflation, it appears fewer are taking it at all, as evidenced by the plunge in expenses over the last 4 years. This has meant that the amount of money going out in Homestead Credits ends up being less than budgeted, resulting in a large source of the Fiscal Year 2014-15 “savings” that appeared in the Annual Fiscal Report. As shown on page 32 of the document, there was $116 million set aside in the 2014-15 budget to pay for the Homestead Credit, but only $106.4 million was paid out, allowing $9.6 million to go back into the General Fund and fill budget holes.
And the Homestead Credit was far from the only provision that this occurred in. These are the largest lapses for tax credits in the last fiscal year, and note the large giveback from Wisconsin’s Earned Income Tax Credit, which was also reduced in 2011 as part of Governor Walker’s first budget. This also may indicate the lessening of the credit is discouraging people from taking it at all.
Tax credits with lapses over $1 million, FY 2015
Enterprise Zone Jobs Credit $17.32 million
Homestead Credit $9.64 million
Veterans & Surviving Spouses Prop Tax Credit $6.37 million
Earned Income Tax Credit (GPR portion) $6.03 million
Some of these large lapses drove adjustments in this latest budget, reducing the size allotted for 2015-16, as shown on the Shared Revenue and Tax Relief and General Fund Taxes part of the LFB’s summary, and the state budget document itself. Here are some of the credits that got their budgets reduced to match recent use.
Reductions of certain tax credits, 2015-16 budget
Homestead Credit $116.0 mil to $112.5 mil (-$3.5 million)
EITC $44.3 mil to $36.4 mil (-$7.9 million)
Vets, Surviving Spouses Prop Tax Credit $32.37 mil to $28.4 mil (-$3.97 mil)
Interestingly, the credit with the largest lapse from lack of use was the Enterprise Zone Jobs Credit, but that got bumped UP by over $5 million dollars for this Fiscal Year. I find that decision and the priorities it shows….noteworthy.
Regardless, reducing the money set aside for those other three credits result in a “savings” of over $15 million in this fiscal year alone. The positive part is that this allowed for budget holes to be filled without raising taxes or cutting services, but the bad part is that is lessens the chances of lapses at the end of the fiscal year. And with $1.1 billion in lapses built into the 2015-17 budget, that’s not a good thing.
On a related note, the AFR also lists the outcome of what are considered Sum-Sufficient expenditures, which are basically entitlements that have a number set aside each year in the budget, but the amount of those expenses could be above or below what is actually paid. This also featured some interesting numbers.
Lapses of over $1 million, sum sufficient expenses, FY 2015
State Senate $3.17 million
Milwaukee Parental Choice Program $2.97 million
State Assembly $2.13 million
Disaster Aids- Public Health Emergency Quarantine $1.39 million
Circuit Courts $1.21 million
Legislative Documents $1.13 million
Interestingly, the Courts, Assembly, and Legislative Documents all got increases in their 2015-16 budgets (relatively small ones that total $3.1 million, but still). The Senate had a small decrease of $217,000, and the Disaster Aids were kept at the same $2.5 million level of the previous year (makes sense, you need to be ready when bad things happen).
But these adjustments are tiny compared to what we’re seeing with the Milwaukee School Choice Program. Given that nearly $3 million lapse and the program largely staying as-is, if anything, this program should have its budget cut for next year. But instead, it’s being given a $6.9 million INCREASE in the 2015-16 budget, allowing for $9.9 million in added money to go into Milwaukee vouchers compared to what it spent last year. That $9.9 million could have been used in a lot of other ways, but given that Scott Jensen and the voucher lobby got many Republicans elected in 2014, they have to get their favors cashed in. So is anyone surprised that the taxpayer money is designated for their group instead of other needs?
By the way, that $6.9 million increase in budgeted Milwaukee vouchers is on top of the $18.5 million in additional budgeted funds for vouchers throughout the rest of the state, and an additional $4.1 million that’ll go to charter schools. And yes, both of these programs also underspent their allotments last year by a total of just over $900,000.
This shows just how policy changes in Wisconsin have reduced the ability of low-income people to take advantage of tax credits, which then causes large lapses in those credits and the excuse to cut the amount of money set aside for them in the future budgets. In return, there are extra funds available to be directed toward special-interests like voucher schools, who continue to get additional funding despite failing to use up what they were given in previous years.
Interesting how these things work out, eh?