Why a $1 billion shortfall looks like progress under Gov. Scott Walker's budget

MADISON - Gov. Scott Walker's budget would leave the state with a mid-sized shortfall of just over $1 billion after the 2018 election, a new report finds.

The projections by the nonpartisan Legislative Fiscal Bureau find that if Walker's current budget bill is passed the state would have a two-year shortfall of $1.05 billion going into the next budget starting in July 2019.

That's less than what the state has seen in many past budgets but still enough to potentially lead to tax increases or cuts to education and health care if the economy weakens.

"Wisconsin’s finances are sound, as we have ended every budget under Governor Walker with a surplus. In fact, today’s structural balance projection would be the third best in the last two decades," Walker spokesman Jack Jablonski said.

This expected shortfall is not a budget deficit — it's still in the future. But the report from the Legislature's budget office is a commonly used method for figuring out how well the state's finances are doing.

Walker's budget going into his 2018 re-election bid has won praise for increasing money for K-12 schools and cutting taxes. But those new commitments have also drawn some questions from both Democratic and Republican lawmakers about whether they're sustainable.

The governor's budget — and whatever shortfall it creates — could get larger or smaller in the coming months as lawmakers rewrite it.

To put the projected shortfall in perspective, Walker took office with a $2.5 billion shortfall that was more than twice as big as this one. Most state shortfalls in the last two decades have also been bigger than $1 billion and most of the time the state has ended up all right because the economy generally grows and more state taxes come in to cover the gap.

"The projected balance assumes no revenue growth" from taxes, Jablonski pointed out.

At the same time, the projection also doesn't account for some of the state's fastest-growth expenses, such as the inflationary increases in health care programs for the needy.

One reason the governor has been able to increase school spending and cut taxes in his current budget proposal is because he wasn't facing a major shortfall.

Walker's current budget bill also would leave an ending balance in June 2019 of only $87 million. That would be a lot of money for a city or school district but it would not enough to fund the state's large operations for two full days.

"He's spending down to where there's very little in the coffers," said Rep. Katrina Shankland (D-Stevens Point). "Most people would not run their household that way."

On the other hand, the state would have $302 million in its rainy day fund under Walker's budget bill. That money could be tapped in the event of a recession.