MADISON – State spending is projected to outstrip revenue by at least $373 million over two years unless lawmakers cut expenses, raise taxes or get a boost in federal aid, according to a report released Monday.
That spending gap assumes the state doesn’t commit to new spending despite rising costs. When increased health care expenses, other costs and a potential boost in school aid are taken into account, the budget shortfall could swell to more than $2 billion, according to the report by the nonpartisan Wisconsin Policy Forum.
The state is expected to have more than $2 billion in reserves when the fiscal year ends in June, so it would have enough on hand to cover such costs. But relying on reserves would wipe out all or almost all of the funds state officials have socked away over the last decade, and Republicans who control the Legislature will be reluctant to do that.
To get a handle on the state’s fiscal picture, the policy forum compared expected revenue to projected spending under the state’s current policies for the budget that will run from July 1, 2021, to June 30, 2023.
The forum accounted for the debt payments and employee compensation during those two years, but not new spending requested by Democratic Gov. Tony Evers’ administration. That calculation found the state would come up $373 million short over the two years.
That budget scenario does not account for a number of added costs, including some that are all but unavoidable. For instance, state officials project they will need an additional $1.1 billion to cover rising costs for Medicaid, the state-federal system that provides health care to the elderly, disabled and low income under BadgerCare Plus and other programs.
Prisons, schools and the University of Wisconsin System are also expected to need more money, adding to the challenges for Evers and lawmakers.
When adding in the additional Medicaid costs, a $282 million boost in aid to schools and 1% annual increases in spending for other state programs and agencies, the two-year shortfall grows to about $2.1 billion, according to the policy forum.
Adding to the uncertainty: COVID-19.
The coronavirus pandemic could worsen the state’s budget picture in two ways. First, it could force the state to spend more money to cover testing and other expenses. Second, its damage to the economy could lower the state’s tax collections.
Assistance might be coming from Congress, which is considering another stimulus package that would give states millions of dollars to help stave off the worst of their budget problems. But whether stimulus legislation will pass a divided Congress – and whether it will include much help for states – remains to be seen.
While the report points out the challenges for the state, it notes the picture could change substantially between now and when budget deliberations begin.
“With the pandemic still spreading, all of these projections remain awash in uncertainty,” the report states. “On the one hand, the state’s tax collections could falter or dire new spending needs could develop. On the other, the situation could also improve if a vaccine and additional federal legislation help to bring about a recovery.”
Evers will present his budget on Feb. 16 and legislators will spend the spring and early summer debating and rewriting it. Evers can then reshape it using his partial veto powers.
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