MADISON — Gov. Tony Evers wants to spend Wisconsin’s unprecedented state surplus on the public education system and an election-year refund check. Republicans are talking about tax relief.
But a Madison-based think tank argues a good chunk of the $4 billion-plus should be set aside in the state’s Rainy Day Fund — ahead of the next recession.
Forward Analytics, a division of the Wisconsin Counties Association, notes the budget stablization fund has been dramatically expanded over the last decade, but it’s still under recommended savings thresholds.
In its new report, “Flush with Cash: Wisconsin’s Growing Financial Reserves,” the research group lays out the state’s rosy budget picture.
“Wisconsin’s financial reserves totalled $4.3 billion at the end of fiscal 2021 and is growing. At 22% of annual state spending, reserves are at an all-time high,” the report states.
Total financial reserves are a combination of the budget stabilization fund, or rainy day fund, and the ending balance in the state’s general fund. At the close of the 2021 fiscal year, the state had $1.7 billion in its rainy day fund and a $2.6 billion general fund balance, the report notes. Fiscal experts are projecting reserves to rise to $5.6 billion by the end of the 2023 fiscal year, driven by a $1.3 billion increase in the general fund balance.
Those projections, of course, are very subject to change. In an era of soaring inflation not seen in 40 years, war in Europe, an overheated real estate market and rapidly rising U.S. debt, economic uncertainty is the only certainty.
“The general fund balance, which accounts for 60 percent of the current reserves, is unreliable as a long-term cushion,” the report states, adding that 10 of the last 14 budgets drew down this balance to pay for ongoing spending.
On the other hand, use of money from the state’s rainy day fund, by law, is restricted — to be drawn on only in times of lagging revenue. Currently, the $1.7 billion in the fund represents about 8.4 percent of spending. While that’s above the 5 percent target in state law, budget experts recommend holding at least 15 percent of spending in reserve.
Doing so would “ensure the state is well prepared for the next recession, while leaving $1.3-$2.6 billion to use for other priorities,” Forward Analytics asserts.
“With Tax Day upon us, it is important for state residents to understand the state’s strong financial position, and how we can use that to be prepared for the next recession” said Forward Analytics director and report author Dale Knapp, formerly research director for the nonpartisan Wisconsin Taxpayers Alliance.
“We have a unique opportunity to set the state up for long-term success by taking the windfall of today and creating better footing for tomorrow.”
But the governor and his liberal allies in the Legislature have other ideas.
Evers is pushing a plan to use $1.7 billion to pay for $150 refund checks for every Wisconsinite, whether they pay taxes or not. He also wants to tap $750 million of the surplus for K-12 education and the state’s university and tech college systems. He claims he would mark $188 million for property tax relief and countering rising inflation.
The Republican-controlled Legislature effectively rejected Evers’ special session on spending the general fund balance, calling the refund proposal an election-year gimmick. Republicans have mulled another round of expansive tax cuts.
“Every one of these giant checks Evers poses with this fall represents the outrageous overspending of the federal government which rained down $58 billion into Wisconsin,” said Senate Majority Leader Devin LeMahieu (R-Oostburg). “Strong families and determined individuals are the solution to our state and nations problems. Not more government programs or mandates. Empowering individuals and families is the only way to restore our state and nation to what it should be.”
The state’s budget and its healthy rainy day fund are in large part the result of fiscal restraint budgets by conservatives following the budgetary nightmares of the Great Recession. Surpluses over the last decade-plus have been turned into tax cuts.
A memo from the nonpartisan Legislative Fiscal Bureau details $21.9 billion in tax savings between 2011 and June 2023 — the end of the current biennium. The state’s healthy rainy day fund, once pillaged to nearly nothing, is the work of fiscal conservatives chipping away at the state’s once massive structural deficit.
Forward Analytics’ report concedes that further strengthening the state’s budget stabilization fund is “not currently on the radar,” but doing so “might be a wise use of some of the general fund balance.”
“Shifting dollars from the general fund to the stabilization fund does not create an ongoing financial commitment and will help to ensure the state is better prepared for the next recession,” the report states.