Bad times hit state budget

MADISON — The slumping economy will result in state tax collections falling $650 million below projections in the current two-year state budget — 60 percent more than the shortfall estimated last month, a report warned Wednesday.

Aides to Democratic Gov. Jim Doyle took austerity measures to bring that potential budget deficit down to about $416 million, an amount Doyle and the Legislature will try to make up this year. Those emergency steps included a delay in paying off $125.4 million in debt.

In his report, Fiscal Bureau Director Robert Lang said state income and sales tax collections will fall far below estimates made late last year. Three weeks ago, Lang had said the tax-collection shortfall could be up to $400 million below projections by mid-2009.

The report appeared to doom new high-tech business tax breaks, estimated to cost about $15 million, that Doyle proposed only weeks ago.

Republican lawmakers also were quick to draw the line against any new taxes, but Democrats who control the Senate said they would look at ways to address the issue beyond spending cuts and one-time funding, such as cutting corporate tax loopholes.

And, Lang added, state government’s fiscal outlook could get much worse, depending on these issues:

• A pending ruling in a state Supreme Court case could force the state to refund $293 million to businesses.

• A pending Dane County lawsuit over a $200 million transfer from a fund that pays awards to medical malpractice victims.

• More than $70 million in casino payments the Ho-Chunk Nation has so far refused to pay.

• Fewer sales of vehicle registrations and titles, threatening to create a transportation fund deficit of $25 million to $40 million by mid-2009.

“We will have other tough choices ahead of us,” Doyle said in a statement. “We will have to delay spending that everyone agrees is worthwhile. We will have to look for trims everywhere, and we will have to make some hard sacrifices and difficult cuts.”

Doyle could again call for a new tax on hospital revenues, which estimates last year said would have attracted $418 million more in additional cash.

Republicans who control the Assembly blocked that proposal and still oppose it, said an aide to Assembly Speaker Mike Huebsch, R-West Salem.

The report on state government’s worsening budget picture came while Doyle campaigned in Wisconsin with Democratic presidential hopeful Barack Obama. That prompted Mark Jefferson, executive director of the state Republican Party, to say the governor “continues to push aside his day job to campaign for Obama.”

It was unclear when the Legislature, which is scheduled to adjourn within a month, will fix the deficit.

Last year, it took more than four months for Assembly Republicans and Senate Democrats to agree on a two-year budget.

Options vary

Sen. Mark Miller, D-Monona, co-chairman of the Legislature’s Joint Finance Committee, said lawmakers should consider a range of options in addition to belt-tightening. For one, he said, the state could close tax-code loopholes he says are being abused by large businesses; Senate Democrats have said that would bring in about $90 million.

“We have to maintain our commitment to the most vulnerable citizens in the state, and one of the ways is to make sure everybody’s paying their fair share,” Miller said.

Three Assembly Republican leaders — Huebsch, Majority Leader Jeff Fitzgerald of Horicon and Rep. Kitty Rhoades of Hudson, the other finance committee co-chair, — ruled out raising taxes to solve the budget crisis.

“Unfortunately, there are some in Madison who view this shortfall as an opportunity to raise taxes. This is not an option,” Huebsch said in a statement.

On Tuesday, Doyle budget aides ordered $236.4 million in new spending cuts and other changes that will lower the deficit by mid-2009. Those changes will force state agencies to return $111 million by June 30 — $53 million more than planned — and delay paying off $125.4 million in debt.

The $650 million gap between spending and tax collections is about 2.4 percent of all general-fund taxes that had been expected in the two-year budget cycle.

Almost $2 out of every $3 in state tax collections goes directly to local units of government, to pay for public schools or for credits that hold down property taxes. Without tax increases, the only way to fix the deficit is by cutting spending and not filling vacant state jobs.

The deficit also worsens the long-term budget problem, because Capitol officials had already faced a gap of almost $900 million between tax collections and spending commitments through mid-2011.

— Copyright © 2008, Milwaukee Journal Sentinel/Distributed by McClatchy-Tribune Information Services

Tags: economy, budget, jim, doyle, debt