Budget deal Pt. 2- Trump/GOP cutbacks from DC, and Wisconsin's other land mines for 2027

We ended Part 1 by saying that we could pass the "blockbuster" $1.8 billion school funding and tax cut/rebate package in Wisconsin, keep it for the next budget at a cost of $1.6 billion, and still balance the 2027-29 budget if state tax revenues increased by a (very feasible) 4% in each year.

But that number also assumes no increases in costs for the same amount of services from July 1, 2027 through June 30, 2029, and we are already seeing some costs go up for state services in June 2026 . For example, Wisconsin’s Medicaid budget is already projecting a $263.6 million deficit by June 30 of next year, as the Department of Health Services says “costs are trending higher than assumed in [the 2025-27 budget] for several essential healthcare services.” Oops.

Given that the 2025-27 budget was built on a projection of 2.9% inflation for 2026 and 2.2% in 2027 but PCE inflation is running at 3.8% over the last year, so not only have base costs gone up well beyond the 2.9% projection for 2026, but what reason to think that this figure will get back toward 2% for the 2027 Fiscal Year? Higher costs (both fuel and nonfuel) are soon to be passed ahead by businesses for their products, and there absolutely will be an attempt by companies to “re-set” prices at the start of next year to make sure the profit numbers stay strong in 2027.

So the base costs are likely to be higher in 2027 than what you're seeing in the structural budget.

There are also a couple of significant items that aren’t included in that structural deficit calculation that may require more money in the bank to pay for from July 1, 2027 to June 30, 2029. One is the possibility of an explosion in amount of the state’s writeoff for costs associated with the construction of data centers. As the Legislative Fiscal Bureau noted back in March:

The announcements and planned investments from these four certified companies combine for a total investment of more than $36.9 billion, spread over the life of each project (currently planned to occur between 2024 and 2028). It is estimated that an investment this size would result in $1.5 billion in initial foregone state sales tax revenue. Additional foregone state sales tax revenue of $369 million on an annual basis is estimated once these projects are completed. Expenditures eligible for the state tax exemption would also be exempt from local sales and use taxes, resulting in forgone county, city, and premier resort area tax collections, if applicable.

Almost all of that $1.5 billion in reduced sales tax revenue has yet to happen, as many of these projects aren’t didn’t start construction or have to send the information to WEDC until this year or later.

Sure, we also see revenue positives from the boosts in construction activity when it happens, but also note the “$369 million on an annual (aka – “ongoing”) basis is estimated once these projects are completed,” which should show up in the 2027-29 revenue estimates as well as future budgets. And if there’s a cutback in data center activity in 2027-29 (sure seems likely given how these things are hated across Wisconsin), then these facilities start being a drag on state revenues.

Another concern that could lurk over the next budget is the lack of help coming from DC under Trump/GOP, and how the Big Bunch of Bollocks that they made into law (including the votes of likely GOP Guv candidate Tom Tiffany) is going to shove costs down to the state level. That was illustrated again in a large Politico article over the weekend.

The Trump administration is counting on Medicaid work requirements to save the government billions of dollars. But well before the rules formally go into effect Jan. 1, they’re costing already-strapped states millions or tens of millions to implement.

State health departments are having to funnel resources into hiring more staff, paying for overtime, and upgrading their aging technology systems so they can determine which low-income residents are working, volunteering, caregiving, or studying enough hours to keep their Medicaid coverage. They are also building new systems to determine who is sick enough to qualify for an exemption…..

States and the federal government would theoretically save money if the requirements cause millions to drop off the Medicaid rolls, as predicted. However, state officials fear any state savings will be offset or even cancelled out by expenditures to enforce the rules, as well as other impacts of the One Big Beautiful Bill Act passed last summer. “I’m looking at the operational, I’m looking at the programmatic, and I’m looking at the fiscal challenges associated with the implementation of this bill, and it’s taking a significant amount of financial resources away from a system that people depend on,” said Marvin B. Figueroa, the Virginia Secretary of Health and Human Services.

Wisconsin was among the states that have shelled out more funds for these extra costs, giving $72 million over the next 2 years for personnel and technology upgrades to “increase oversight” on programs such as FoodShare and Medicaid (on top of the $263 million Medicaid deficit, by the way). It looks like these costs and positions are assumed as part of the LFB’s structural budget for 2027-29, but this seems far from the last of these items that’ll be cut from the Feds and Wisconsin will have to deal with and likely pay for.

There are also the extra funds Wisconsin has been able to take advantage of under the 2022 Infrastructure Investment and Jobs Act, including $94.3 million of recently granted investments to remove lead from drinking water that Congressman Bryan Steil is taking credit for despite voting against the bill. The 2026 Fiscal Year is the last year for those boosts in investments, and do you think this dysfunctional GOP Congress or the Trump Administration is going to pass something else to keep those funds flowing? Especially with the US Highway Trust Fund expected to run out of money in 2 years? HAH!

That’ll add to the funding strains for a Wisconsin Transportation Fund that already is in need of more money. In the current state budget, there was a one-time transfer of $580 million sent from the General Fund in the 2026 Fiscal Year to pay for items in the Transportation Fund, in addition to ongoing transfers of just over $110 million from items such as a small portion of all sales taxes and specific sales taxes on electric vehicles, along with left-over funds from the state’s Petroleum Inspection Fee.

And without that one-time transfer of $580 million, the Wisconsin Transportation Fund is expected to spend $300 million more than it takes in for Fiscal Year 2027.

Since the Transportation Fund is projected to only have $28.5 million left over in it as the next budget begins, that means another $600 million is needed to make up the difference ($300 million each year). Plus whatever might be cut by Sean Duffy and company from US DOT for whatever stupid reason they make up.

Oh, and have I mentioned that a lot of highway construction cost is related to the costs of petroleum and other oil-related products? Those road projects sure won’t be cheaper when we’re debating the next budget this time next year.

And I haven't even figured in the effects of a recession caused by cutbacks in the face of these higher prices and/or reduced demand. If there is one, or of this inflated stock market ever falls back toward reality, then you likely don’t have that 4% increase in revenues that would at least give a chance of the next budget balancing.

So there are plenty of legitimate reasons why Legislative Democrats and others could voice concerns about using up our budget surplus in 2026 when things are likely to be much tougher in 2027. That doesn’t mean there isn’t merit to giving education-related property tax relief now, when so many Wisconsinites are struggling, and I still remain ambivalent on what's the best option. I get the WisDems wanting more money to be left for 2027, given the strong chances of them running all of state government at that time, but I also get taking care of some of the real strains for taxpayers and K-12 school districts today while we can.

But while you can question whether concerns over future costs should outweigh the need for relief today, you can't say the numbers are made up, because the 2027-29 budget in Wisconsin could be even tighter than the "structural deficit" calculations let on, after the Trump/GOP crew got back in power in 2025.