New Stats on W-2 Participation Contradict Rosy Assumptions in JFC Budget

The underside of the Wisconsin Capitol Dome

Will Wisconsin legislators help the people or the wealthy?

When legislators take floor votes this week, they will decide whether and how much to cut spending for the Wisconsin Works (W-2) program, which aids unemployed low-income families, and whether they divert the savings to use for things like tax cuts for the wealthy.  The arguments that state budget writers have used to support a W-2 cut are running up against some very inconvenient facts that contradict the Joint Finance Committee’s assumptions.

As I’ve written on other occasions (such as this blog post), the budget bill’s cut in W-2 spending is part of a strategy that siphons off money intended for low-income families – in order to free up General Fund dollars to use for other purposes, such as the proposed income tax cut.

The spending cut was based on the assumption that W-2 participation would decline steadily, beginning well before the start of the new biennium.  Sometime in the last few days, DCF posted data online that contradict the rosy assumptions about declining W-2 participation.  When the Joint Finance Committee (JFC) acted, we only had W-2 data through March.  Now we have two more months of data, and here’s a synopsis of the gap between the rosy assumptions and reality:

  • The budget proposed by the Governor assumed that W-2 participation would decline by 1% every month, starting in January 2013.
  • By the time JFC reviewed the funding for W-2 and other TANF-funded parts of the budget, W-2 participation had climbed by 7.2% relative to the December 2012 level, and the average cost per case was also higher.
  • Those facts prompted JFC to reduce the cut in TANF funding for W-2 to $13.4 million, instead of the $31.7 million cut recommended by the Governor.  However, the reduced cut is based on the very optimistic assumption that the number of families receiving W-2 benefits would decline by 1% every month, starting in April.
  • New data for April and May show that W-2 participation did not decline by 2% during that period, it rose by more than 6% – putting the May W-2 participation 8.4% higher than the level that the JFC budget assumes!

A new Wisconsin Budget Project issue brief explains the widening gap between budget reality and the overly optimistic assumptions about W-2 participation.  It analyzes the very substantial fiscal consequences of several somewhat less optimistic scenarios.  Here are two of those alternative scenarios, which might still overestimate the change in the current upward trend:

  • Even if W-2 spending drops by 1% per month – but that decline starts in July from the current, increased level – W-2 spending would be almost $15 million higher in 2013-15 than the JFC budgeted for W-2.
  • In the more likely event that the participation is essentially flat (or gradually levels off before eventually declining to a point where the 2013-15 average is equivalent to the May figure), W-2 spending would be nearly $37 million higher in 2013-15 than the committee proposed.

The fiscal problem this creates could be resolved very easily by not siphoning off TANF block grant funding to free up General Fund dollars for purposes such as tax cuts.  The budget increases that diversion of TANF funding by almost $19 million per year (on top of a $27 million per year increase in the previous biennium).

Legislators have a fundamental choice to make.  Are they going to use TANF funding for the purposes for which that block grant is intended, or are they going to divert as much as possible to maximize the size of income tax cuts that predominately benefit people making more than $100,000 per year?

Photo by cimexus released under a Creative Commons No Derivatives license.