Monday, August 31, 2020

Budget crisis? What budget crisis?

For a while, we've figured that Wisconsin would have a sizable revenue shortfall due to the COVID-induced reccession and the related layoffs. Well, today we got the long-awaited estimates for revenues for the end of Fiscal Year 2020. So what's the damage?

Surprisingly, not much damage at all.
Preliminary information regarding general fund tax collections for the 2019-20 fiscal year is now available. According to the Department of Revenue (DOR), collections totaled $17,532.2million in 2019-20, which was1.1%higher than the previous year.

The final estimate of tax collections (projected last January and adjusted for subsequent law changes) was $17,644.8 million. Actual collections were $112.6 million, or 0.6%, below the estimated amount.
To be fair, estimates had already been dropped by more than $54 million due to previous actions in 2020 (mostly to match up state tax laws with changes in the CARES Act), but that's still a lot better than most of us were thinking. In fact, it's more tax revenues than what was projected when the state budget was signed into law in July 2019.

So not only was the revenue shortfall nowhere near as feared, the state of Wisconsin will actually make a deposit to the Rainy Day Fund of around $106 million. Along with that fund, we've got a lot of cushion carrying over for FY 2021, as even with the $167 million in reduced revenues, there still would be over $980 million left in the bank for next year.

So we're out of danger with no worries, right? Not exactly. First of all, it is highly likely that there will also be shortfalls in other state revenues, such as parking fees since more state employees are working from home. The amount of payments the state gets from Native American tribes will also likely go down, as casinos were closed empty and/or on lessened capacity for the last 4 months of FY 2020. But that will probably only be a few million more dollars of shortfall.

Looking ahead to FY 2021, there will be an odd reason for a decline in income taxes - the end of the $600-a-week unemployment supplement in July. Those payments often have state taxes taken out of them, and not only will the end of those expanded benefits likely lead to more stresses on social programs and reduce consumer demand due to the still-unemployed becoming poorer, but it'll also lessen the amount of revenues that come into the state in the coming months.

The bigger concern will be on the expenses side, as the state's Medicaid enrollment continues to grow, and the need for other social services also went up as the COVID shutdowns hit around the state.

CARES funds and other Federal bailouts is taking on much of those extra costs for FY 2020, but that doesn't seem likely to happen again in FY 2021. We've seen the unemployment funds already get slashed, and the Federal matching rate for Medicaid goes down by 6.2% at the end of December, meaning state taxpayers will have to make up the difference. Given the headwinds on demand, there is little reason to think that the state's economy will be better than it was at the end of July, and that level was far below what the LFB based its estimates on.

That means that FY 2021 is still going to be problematic from a budgetary standpoint, even with the large cushion, and we will likely need all of that money in order to pay the bills between now and the end of next June. But Governor Evers and legislators probably won't be forced to do much (if anything) more to repair the budget between now and the start of the next biennium on July 1, 2021. And I and many others would not have thought that was how this was going to shake out when August began.


  1. As a soon to retire state employee this is great news. Anticipated cuts were looking really dire. Glad that programs important to supporting the people and businesses of Wisconsin will remain as they are. That isn't to say that a lot of the programs aren't shoestring thanks to 8 years of GOP budget devastation but this is welcome news.

    1. This is why I didn't understand why Evers was doing pre-emptive budget cuts before we got the final revenue figures. Now, it might be more than is needed, or the real damage doesn't come in until next year, which causes cuts on top of cuts.

      Or, Evers could just balance the budget using Medicaid expansion, and take it from there.

    2. Can he take Medicaid without the legislature? If he can, why hasn't he?

    3. He can't, and we cant do by statewide referendum either. Combine that with the gerrymandered Legislature, and you see the problem.