Revenues slightly low, but not a disaster...yet

Interesting how the "Holiday dead zone" of news coverage has become a good time for the Walker Administration to catch up on their overdue financial reports. Another example of this was the November revenue report from the Wisconsin DOR, which was released on time this Tuesday afternoon. What, you missed it? Well, that might have been the plan, although the overall picture wasn't that bad (with one glaring exception)

Wisconsin revenues Nov 2015 vs Nov 2014
Adjusted income tax -0.7%
Sales tax +6.6%
Corporate tax +$11.0 million
Excise tax -0.6%
Other +0.2%
TOTAL ADJUSTED REVENUES +2.8%

That may sound OK at first glance, but the 2015-16 budget has a 4.6% increase in revenues built into it. And that strong sales tax figure could be misleading, as Cyber Monday fell in November this year, but didn’t happen until December 1 in 2014. Ruh roh.

When you plug in the totals for first 5 months of the fiscal year vs this time last year, the combined amount of sales taxes, corporate taxes, excise taxes and other taxes are largely in line with the figures in the state budget (barely behind, but we’ll say “in line” for argument’s sake). However, we also see that income taxes are running low, leading the possibility of a revenue shortfall, given that income taxes are more than half of overall General Fund revenues.

Fiscal Year 2015-16 through November Income tax UP 5.12%
Fiscal Year 2015-16 budgete change in Income tax vs 2014-15 UP 7.09%
Shortfall 1.97%
1.97% shortfall in income tax = $158 million.

That's not so good, and even worse, it sets things up for a larger shortfall in the second Fiscal Year of the budget, because we'd start from a lower base. Yes, the 2015-16 Fiscal Year has $297 million of cushion built into it ($161.8 million in the finalized budget, and then adding in the $135 million+ year-end balance), which makes it unlikely (for now) that we would need a budget repair bill for this fiscal year. But it does mean that year 2 is on track to end up with a deficit, and that's after the $740 million in unspecified lapses are built in, which means furloughs and other in-year cuts would be virtually guaranteed if the lower trend in revenues would continue.

I'd say it's not yet time to hit the panic button, but it is time to start preparing yourselves for the possibility that it will have to be hit. This may become especially true when the Legislative Fiscal Bureau releases updated projections next month, which will cover the rest of this fiscal year as well the 2016-17 one. Because with a slow-growth U.S. economy and slow growth in Wisconsin revenues, it'd be more likely that the projections would go down vs going up, and that would mean more immediate action would be required.