Gov. Scott Walker talks with attendees before a freight industry summit in November in Milwaukee. Credit: Gary Porter

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Madison — As Gov. Scott Walker seeks to use a state surplus to cut property taxes, a bloc of Republicans in the Senate is advocating for first putting money toward ensuring the state's long-term fiscal health.

Those senators support cutting taxes, but they say some of the projected budget surplus should go toward making sure the next state budget does not open in July 2015 with a shortfall.

"I'm still arguing for caution on this," Sen. Rob Cowles (R-Allouez) said. "We don't know the governor's plan yet, but I'm urging caution, given what's happened in past years."

Sen. Luther Olsen (R-Ripon), a member of the Legislature's Joint Finance Committee, agreed on the importance of setting aside money for the next state budget, saying Republicans ran on fiscal responsibility.

"As I talk to people out there, they remember all the (budget) cutting and all the anguish we had in the last couple years," said Olsen. "What I'm hearing out there is, 'Be smart, guys. Don't just pander for the next election.'"

Indeed, the excess money is an election-year boon for Republicans. Walker, all the members of the Assembly and half the state senators face re-election in November.

Walker and Assembly Republicans see less urgency regarding the long-term concerns about the state budget, saying their past tax cuts have contributed to the economic growth that is producing the surplus. Cutting taxes again would have a similar effect, they say.

"My point is the strategy has been proven to work," said Rep. John Nygren (R-Marinette), co-chairman of the finance committee. "I'm not worried about a (projected) deficit, because we've proven we can grow out of it."

The Legislative Fiscal Bureau last week projected the state would take in $911.9 million more than expected through June 2015. As a result, Walker has said he is developing a plan to cut property taxes and change income tax withholding rates, so that workers would have less taken in taxes out of each paycheck.

The governor — who will spell out his plans Wednesday in his "state of the state" address — said in an interview last week it wasn't a top priority for him to address the projected shortfall in the next state budget.

That shortfall, often called a "structural deficit," is one way to measure the long-term health of the state budget. Before the new revenue estimates, it was expected to hit $725 million for the 2015-'17 budget. The projection is imperfect because it looks at spending and tax changes locked into state law without trying to factor in expected growth in tax collections or key spending programs, such as health care for the needy.

In addition, the fiscal bureau's recent estimates didn't account for a projected $93million shortfall in the state's Medicaid health programs or a projected $18.9 million shortfall in the welfare-to-work program, known as Wisconsin Works, or W-2.

If the funds come in as projected in the latest report, lawmakers would have enough cash to take care of the structural deficit and still have money left over to cut taxes — but not necessarily by as much as Walker and some Republican lawmakers want.

They also have the option of trimming about $2 billion in new bonding included in the current budget that some Republicans viewed as too high.

Meanwhile, Democrats, such as Senate Minority Leader Chris Larson of Milwaukee, said Republicans should use this opportunity to restore past cuts in state aid to schools.

"As Wisconsin job growth continues to lag behind our Midwestern neighbors, Governor Walker and his GOP allies in the Legislature have been given an opportunity to put the $800 million that was stolen from Wisconsin children's education back into classrooms across our state," Larson said.

Majority Republicans, however, are focused on tax cuts. One plan taking shape would shift some expenses for technical colleges from the property tax rolls to the state budget.

The total statewide property tax levy by technical colleges in December 2013 was $797 million, according to the fiscal bureau. Of that, $615 million was for the colleges' day-to-day operations and $182 million was to cover debt for large investments, such as buildings and equipment.

Nygren and some other Republican lawmakers said they liked the idea of cutting property taxes by using state money to cover a portion of the colleges' operating costs, but did not want to use state money to pay down their debt. That's because the debt levels taken on by each of the state's 16 technical colleges vary widely, and taking on those costs would benefit taxpayers in some college districts more than others, they said.

Rep. Dale Kooyenga (R-Brookfield), a certified public accountant and member of the finance committee, said technical colleges' debt payments should remain on property tax rolls.

"Those are the responsibility of people who put it on the levy, and it's going to stay on the levy," he said.

Republicans continue to kick around other ideas for cutting taxes, as well.

Some are advocating for eliminating the $80 million or so placed on property tax bills each year to pay for the state forestry program. Others want to create limited sales tax holidays in August and November — one for computers, clothes and back-to-school supplies and one for energy-efficient appliances.

Another plan would eliminate the alternative minimum tax that is charged to certain tax filers with a large number of tax deductions. That idea could spark a fierce debate, because Democrats say the alternative minimum tax is one means of ensuring wealthy people pay their share of taxes.

But for any tax cuts to pass the Legislature, the senators with budget concerns will have to be convinced there's enough money to do it.

Senate Majority Leader Scott Fitzgerald (R-Juneau) acknowledged last week that many members of his caucus see fixing the projected shortfall as the top priority. Republicans have an 18-15 majority in the Senate, so Fitzgerald can't afford to lose more than one vote on any plan for the projected surplus.

Senate President Mike Ellis (R-Neenah) supports cutting taxes but also insisted the state must take steps to remain in good shape when the economy next sours.Sen. Rick Gudex (R-Fond du Lac) sounded a similar note, saying he backed tax cuts but adding lawmakers have a responsibility to be mindful of the projected shortfall.

"It does make sense to shore up the structural deficit when we're able to do it," Gudex said. "I think the Senate is kind of taking a more cautious approach, in my estimation, so we don't overcount or discount the fact that these are projections."

Cowles noted the new projection covers tax collections over two budget years, going through June 2015. He said he was comfortable with the estimate for the first year but said lawmakers should not bank on taking in all the money in the second year.

"There's too many variables for that projection in the second year," he said. "You can't always expect to have excellent growth. You have to be prepared for times when growth is minimal or negative."

But Sen. Glenn Grothman (R-West Bend) said he wanted to see as much money as possible dedicated to a tax cut.

"We already have an all-time high in our rainy-day fund," Grothman said, referring to the reserves that could run state government for about a week. "If you're not going to cut taxes now, when will you?"

Despite the differences between the Republican camps, lawmakers such as Nygren and Gudex said they believed the concerns of both sides in their party could be satisfied.

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