A few key budget things to understand in Wisconsin's scuttled schools/taxes deal pt.1

Two weeks after the rejection of the tax cut and school funding deal in Wisconsin, it's clear that a lot of people don't exactly know all of the numbers involved, or the difference between budgets of NOW and LATER.

For example, all of the following can be true.

1. If no more bills are passed and if state tax revenues remained in the positive trend we saw through April 2026, we'd likely have more than $3 billion in the bank as the biennium ends on June 30, 2027.

2. We could give back $1.8 billion of this in the form of income tax rebates, property tax relief for schools, some targeted tax cuts, and increases in funding for special education services, and still have a bit more than $1 billion left in the bank on June 30, 2027.

3. Passing that $1.8 billion package also means we are looking at a significant budget hole starting on July 1, 2027, where expenses would outnumber revenues by far more than the $1 billion+ in the bank at the start of the 2027-29 biennium.

And a big part of this is the issue of one-time vs ongoing, which is always something that should be central to taxing and spending policy analysis, but usually isn't looked at too much by the media. But what is affordable in one year may not be affordable in future years. Or these ongoing, continuing measures might be just fine and doable, depending on how the bigger picture looks.

Within a week of the school funding/tax cut deal's demise, the Legislative Fiscal Bureau released its breakdown of the bill's costs for now and in future years. Note that while the biggest cost would have been in the Fiscal Year that starts on July 1, it would still have more than $1.6 billion in commitments in the next state budget.

This is because while the $870 million income tax rebate and the $20 million in Disaster Assistance Grants are one-time expenses, all of the other items are ongoing, which means those tax cuts and spending will continue into the next budget until something is changed by a later law.

Likewise, Fiscal Year 2026 is slated to spend a significant amount of General Purpose tax dollars above revenues, even if the $300 million in extra revenue that the Evers Administration estimated last month for FY 26 were to come through (and revenue numbers through the end of April would agree that we are ahead of estimates). But if those added revenues were to hold up for the next Fiscal Year at the same 1.5% increase rate that LFB estimated earlier this year, we'd have a 2027 Fiscal Year that would nearly be in balance.

But that's assuming the $3.4 billion bill doesn't get passed. If it does, then the next fiscal year is projected to have a similar one-year deficit to this current one, even if the extra $300 million in revenues come in for both fiscal years.

And that's where we have the "$2.9 billion structural deficit" argument come in, as the LFB put together the $0.5 billion left in the bank to start the next budget if this bill were to pass, then looked at the 2027-29 budget commitments under the base budgets of 2027, and added in the extra spending/tax cuts that would be ongoing. That means expenses exceed revenues by $3.4 billion for the next budget, and $2.9 billion that has to be made up somehow.

However, one argument being made by the Howard Markleins of the world is that revenue growth is not part of those 2027-29 estimates. So let's throw in a 4% growth assumption (which has been attainable in recent years), and see what we get with this bill.

If a 4% increase in revenues does fill in the gap that appears in the “structural deficit”, then we should be able to get by, right?

Ahh, but there are a lot more obstacles to balancing things in a 2027-29 budget that seems likely to be the most difficult one in the 2020s. And we'll get into those in part 2.