Unlike most states, Wisconsin is in good fiscal shape. And now it's going to get better

Wanted to bring up a recent US news article that starts by comparing two states with surprising budget surpluses, the different ways that they got to that situation. And how they differ from many other states in America.

The reasons differ for the sunnier-than-forecast fortunes of the two states. In Wisconsin, the economy showed surprising resiliency and the state received large payments of back taxes from businesses the state audited. California, meanwhile, benefited mightily from a progressive tax system that hits wealthier residents hardest. The state is home to some of the highest-income households in the country and massive stock market gains along with a handful of prominent initial public offerings by companies such as Airbnb and DoorDash resulted in the state taking in more taxes during the last nine months of 2020 than in 2019.

But those two examples aside, the picture of state finances in 2020 and heading into 2021 is far from pretty. Overall, sales tax revenues are down around 1% for 2020, says Lucy Dadayan, a senior research associate at the Urban Institute. But that follows years in which the average annual growth rate for sales tax revenue was around 5%, she notes.

It's worth noting that the unequal nature of the recession and recovery has helped many states weather the COVID World better than expected.

As many economists have noted, the recession spawned by businesses and other institutions closing up shop in the early days of the pandemic hit lower-income, service-sector employees much harder than those whose jobs do not require face-to-face contact. Then, the record stock market buoyed the richer end of the earning spectrum, along with record housing prices that added $1 trillion in equity to homeowners. Ownership of stocks and other investments is concentrated among higher-income households.

The structure of state revenue sources also mattered. As people spent more on goods like cars, boats and furniture, sales taxes captured more revenue. Many states do not collect sales taxes on services like health care, spending on which dropped during the pandemic as people avoided going to the doctor and elective surgeries.

White says states have broadened their sales tax bases in recent years, in part to capture more revenue from online sales that have boomed in the past year. This followed the 2018 Supreme Court ruling in South Dakota v. Wayfair, which broadened state tax revenue bases by allowing states to levy sales taxes on businesses without a physical presence in their state but with more than 200 transactions or $100,000 of in-state sales.

That Wayfair decision affecting online retailers is a big reason behind Wisconsin keeping up with our pre-COVID sales tax projections. It also will likely lead to bigger income tax refunds in the coming months, because state law offset those higher sales taxes from online sales with an income tax cut that tripled between 2019 and 2020 with the larger amount of online sales in the COVID World.

And now Wisconsin is going to benefit from the American Rescue Act’s payments to state and local governments, which was included because many other states that are facing significant deficits and other fiscal struggles.

Wisconsin and its local governments would receive $5.5 billion in federal help to fight COVID-19 and its economic toll — far more than what they got last year — under legislation recently approved by the U.S. House. The state would receive $3.2 billion and Wisconsin local governments would receive $2.3 billion in help, according to estimates from the House Committee on Oversight and Reform.

Naturally, the Republicans in the gerrymandered Legislature want to be able to hold onto the money and tie Governor Evers’ hands in handing out these funds. The GOP had little to no say over where Evers spent the money in CARES, and do not seem to be able to do under the American Rescue Act (don't you feel good that Scott Walker isn't handling these dollars? Scary thought).

But that isn't going to stop them from trying.

Assembly Speaker Robin Vos (R-Rochester) and Senate Majority Leader Devin LeMahieu(R-Oostburg) were joined by members of legislative leadership in putting forward a bill to ensure that the people of Wisconsin have a voice in how billions of federal dollars are spent. The state of Wisconsin is projected to receive $5.5 billion from the American Rescue Plan Act of 2021. The Truth in Spending Act will allow Wisconsinites through their elected representatives to have a say in the allocation of recovery funds in their communities.

“Billions of taxpayer dollars should not be in the hands of a single person. We’re simply asking that the Governor include others in the decision-making process,” said Speaker Vos. “Not only will this legislation allow for morepublic input, it will also providea new level of transparency.”

The legislation is modeled closely after the language that Democrats approved in 2009 to allow the Joint Finance Committee (JFC) to provide oversight in the distribution of funds from the American Recovery and Reinvestment Act of 2009. However, flexibilities have been added tomake the approvals more expeditious via the committee’s passive review process.

Of course, if the JFC doesn't release the funds, or simply sits on them and doesn't hold a hearing, then the money goes nowhere, and it becomes harder for the state to keep growing out of its jobs deficit. Which lessens the chance of Evers and other Dems of looking good before the 2022 elections, and allows Republicans to keep Wisconsin in its state of austerity instead of one of investment. Win-win for them!

Evers will reject this bill, if it even reaches his desk, so our state won't be handcuffed from using the money that has been sent to us from DC. And it means that 1 year after it looked like COVID World would cause us to have a rough budget, we are instead swimming in money, and can give a huge boost of activity over these next two years, and have funds available for tax cuts and/or shifts away from property taxes for the near future.

If we choose to, that is. Let's see how the billions heading our way from DC changes what we can do, and in what areas we choose to do it.