The underside of the Wisconsin Capitol Dome

Most of the budget surplus is already spent.

The Wisconsin Dept. of Administration released the Annual Fiscal Report today for fiscal year 2012-13, and the news is mostly positive. However, I think some of the spin about a “$760 million surplus” is a bit misleading.

One example of that spin is that the DOA letter to the Governor notes that the $759.2 million balance at the end of June is $274.5 million higher than the balance of $485 million projected by the Legislative Fiscal Bureau (LFB) in January. That’s true, but I think the more relevant comparison is to the estimate made by the LFB in June, because that’s what the budget was based on. That’s important because the budget bill has already used the previous revenue increase to help pay for the increased tax cuts that were enacted.

Compared to the estimates made by the LFB in the budget bill, the $759 million balance that was carried over into the current fiscal year represents an increase of $90 million (after taking into account an increase to the Rainy Day Fund). The improved balance results from a combination of increased tax revenue, larger lapses, and reduced spending. General Fund taxes grew by $571 million or 4.2% compared to the previous fiscal year.

Although having a $759 million balance that was carried into this biennium is definitely good news, keep in mind that the budget bill anticipated most of that and was projected to leave a net balance of just $109 million at the end of the 2013-15 biennium (above the required $65 million minimum balance). The additional $90 million relative to the budget bill’s projections brings the balance at the end of the current biennium to about $200 million – but that’s prior to taking into account the potential for a large increase in the state share of Medicaid spending (see our recent blog post), and the proposed $100 million expenditure for property tax relief.

Keep in mind that using a significant balance to finance ongoing spending or tax cuts almost invariably results in a structural deficit. The proposed property tax cut will exacerbate that problem, unless there is an upward revision to ongoing tax revenue projections. Thus far, the Walker Administration hasn’t explained whether there is reason to believe the increased spending will avoid increasing the $545 million structural deficit that the LFB estimated a few months ago.

For more, go to www.wisconsinbudgetproject.org.

Photo by cimexus released under a Creative Commons license.