The Legislative Fiscal Bureau on Monday estimated the budget for state government will face a nearly $1.8 billion shortfall for the next two-year budget. Credit: Michael Sears

SHARE

By of the

Madison — The expected shortfall for the next two-year state budget starting in July has risen to nearly $1.8 billion, or about half of what it was when Gov. Scott Walker took office in January 2011.

Meanwhile, the state's projected gap in its current budget ending June has risen to $396 million — or about 1.2% of the spending planned for the 2013-'15 budget.

The Republican governor resolved a more than $3 billion budget shortfall in the months after taking office, but the latest projections show the state is running through the resulting surplus. The state is again facing a gap in the 2015-'17 budget because of tax cuts enacted by Walker and lawmakers and lagging growth in other state taxes in recent months.

The projected weakness in the state budget matters because it eventually could lead to cuts in spending on priorities such as schools or increases in state taxes or fees.

The latest estimates by the Legislature's nonpartisan budget office jumped by more than $1.1 billion over the previous estimate of a $642 million gap released in May. The projections from the Legislative Fiscal Bureau were released Monday for the budget beginning in July 2015 and ending in June 2017.

These estimates aren't final — they could still get better or worse depending on the whims of the global economy. The so-called "structural deficit" projections aren't perfect, either — they don't attempt to estimate how much state tax revenue may grow if the economy picks up or how much state costs might rise due to inflation in spending programs such as state health coverage for the needy.

Walker spokeswoman Laurel Patrick downplayed the report, saying the state could still see revenue grow in future years and take new steps to control spending.

"We have a proven track record of managing the taxpayers' money well. By continuing to grow the economy, finding further efficiencies in government, continuing to eliminate waste, we will take care of any future structural issues," Patrick said.

The memo describing this so-called "structural deficit" has been issued regularly by the fiscal bureau going back to the 1990s. It could have a political impact as well. Walker has campaigned for re-election on his handling of the budget. His challenger, Mary Burke, a Democrat, is running on the idea that she can do better.

Burke, a former Trek Bicycle executive, seized on the new projections.

"Governor Walker's fiscally irresponsible approach and his failed stewardship of a lagging economy have resulted in a state budget picture that is a mess," she said in a statement. "I have spent my career balancing budgets and insisting on accountability; setting priorities and getting the biggest bang for the buck. Gov. Walker has spent money we don't have. In the business world, if a CEO created this big of a financial mess, he would be fired."

The memos released at the end of a legislative session or after a budget often change by the time the governor and lawmakers take up the budget in February of odd-numbered years.

For instance, a memo released at the same point in 2010 put the expected shortfall facing Walker in 2011 at $2.5 billion, or more than a half-billion dollars less than it actually was.

This latest projected shortfall is the third highest predicted in a comparable fiscal bureau memo since 1997.

To help handle the potential deficit, the state could draw on some $280 million in reserves that sit in the state's rainy-day fund.

Lawmakers concerned

Even some Republican lawmakers expressed concern Monday about the latest figures.

Sen. Rob Cowles (R-Green Bay) said the numbers show that lawmakers need to do more to urge caution in how the state budgets. Cowles held out for more spending decreases in a tax-cut bill passed last spring before supporting it because of his concerns about its overall impact on the budget.

"We should have done a better job — that's it," Cowles said.

Senate President Mike Ellis (R-Neenah) said the size of the projected shortfall likely meant that lawmakers would have to pass a budget-repair bill early next year.

"They need to come in in January and fix it," said Ellis, who is not seeking re-election.

Ellis was part of a group of Senate Republicans who raised concerns that recent tax cuts went too deep and could harm the state's finances in coming years.

"A number of us were concerned, but they did it anyway," Ellis said. "But we (Republican senators) voted for it, so we can't hide behind 'I told you so.'"

The more than $3 billion projected budget shortfall that Walker inherited as governor represented the gap between the state's expected tax revenue over the next two years and what state agencies were asking to spend over that period. The gap worked out to about 10% of the overall budget in the state's main account.

The new projected shortfall works out to about 5.8% of the 2015-'17 state budget.

To summarize, the state closed a roughly $3 billion shortfall in Walker's first budget, is now a little out of balance in his second budget — the current one — and is expected to face a shortfall in the next budget that is about half the size of the initial one.

To close that first shortfall, Walker lowered state aid to schools and local governments, and then covered most of that lost money by cutting the benefits and take-home pay of teachers, state workers and other public employees. Labor groups organized massive protests against those measures, which included a repeal of most union bargaining power for most public employees.

Walker and GOP lawmakers also reduced income and property taxes across the board in the state, along with other tax cuts for businesses such as nearly eliminating all income taxes for manufacturers in the state.

Walker's administration is expected to provide a fuller picture of where the overall budget stands in an Oct. 15 report.

For now, the fiscal bureau said it expects a ripple effect into the future from an unexpected dip in state tax collections over the past year.

The challenge of a slow growth rate in the early year of a budget is the same for the state as it is for any worker given a low starting salary — it provides a small base that can hinder income growth in future years. For instance, a 2% raise comes to $400 for a worker with a $20,000 salary but adds up to $600 for a worker making $30,000 a year.

Another challenge is that there was relatively little cushion built into the current state budget — like most of the previous ones drawn up by both Democrats and Republicans over the past 20 years. That leaves Wisconsin vulnerable to gusts of unexpected economic winds.

"This budget crisis was completely avoidable and will only get worse if we don't act now to balance our budget and grow our economy from the bottom up," said state Sen. Jennifer Shilling (D-LaCrosse), a member of the Legislature's Joint Finance Committee.

Assembly Speaker Robin Vos (R-Rochester) shot back that Democrats like Shilling "are looking for dark clouds on a sunny day."

"No one can ignore the fact the state is headed in the right direction," Vos said in a statement. "Unemployment is down, more jobs are being created and new businesses are opening their doors."