Economy drives a marathon budget debate

I dreamt last night that I ran a marathon. Every step seemed real. But I know it was a dream because I can barely run a couple of miles. Perhaps the reason for the dream was that I have just completed a different kind of marathon.

I dreamt last night that I ran a marathon. Every step seemed real. But I know it was a dream because I can barely run a couple of miles. Perhaps the reason for the dream was that I have just completed a different kind of marathon.

The state budget cleared the Joint Committee on Finance at 6 a.m. May 30. The long process began with the Governor's Budget Address back in February and proceeded through a series of hearings, including 7 public hearings around the state, like the one held at the Ashland High School on March 28.

This is the most important bill that the legislature passes each session, setting priorities for every aspect of state government for the following two years. This year, however, was particularly critical, as we struggled with the effects of the deepest recession since the end of World War II.

I will write a series of articles about the budget and try to demystify the principle aspects of the budget and shed some light on the more contentious issues. I will begin by defining the problem that we had to confront in putting this budget together.

The state actually has a number of different budgets.


The main budget is the general revenue budget. It is based on tax revenue collected by the state, principally income taxes and sales taxes. About 53 percent of the general revenue budget is spent as state aid to K-12 school districts. When aid to local governments and other property tax relief is added in, approximately two-thirds of the general revenue budget is gone.

There is also a separate transportation budget, based upon gas taxes, vehicle registrations and federal aid, which are placed into a segregated fund. This fund supports not only roads and bridges, but also airports, harbors, mass transit, bicycle and pedestrian trails, and, increasingly, school busing. As the cost of maintaining our aging infrastructure grows faster than the available revenue sources, this fund is under increasing stress.

There are other separate budgets, including the capital budget, supported largely by bonding revenue. University of Wisconsin building projects and other major state construction is financed by this fund.

As recently as last October, the projected general revenue budget shortfall was about $1.5 billion. This would have been the lowest "structural deficit" going into budget deliberations in many years. We could have dealt with such a shortfall without any drastic actions, and without any tax increases.

However, the decline of the economy worldwide led to a steep decline in the amount of revenue that the state collected. Both sales taxes and income tax collections were down substantially. By February, when the governor presented his budget proposal, the shortfall had grown to more than $5 billion. But the news got worse still in early May.

When the revenue figures from the April 15 tax collections were known, the shortfall had grown by an additional $1.6 billion - to a total of approximately $6.7 billion, around one-quarter of the entire general revenue budget. This was primarily the result of the economic decline in the last half of 2008, upon which our income tax collections in April were based.

So, even though there has been unprecedented economic stimulus on both the federal and state level, and there are clear signs of economic recovery in the news every day, there will be a significant lag before that recovery is reflected in state revenue.

The state cannot spend at a deficit, as the federal government can. Therefore, absent federal assistance, we have only two tools for dealing with this problem, cutting spending and raising taxes. Since 2/3rds of the budget is property tax relief, without which property taxes would skyrocket, our primary problem was that it would be impossible to cut one-quarter of the entire budget in one-third of it without completely shutting down most of the government.


Fortunately, the federal government, led by our outstanding Congressman Dave Obey, was willing to use part of its ability to spend at deficit to help the states through this crisis. Without this assistance, Wisconsin would have been in very deep trouble.

Even so, we had to make very deep cuts in state government, smaller cuts in aid to school districts and local government, and moderate tax increases that were targeted to protect middle class families. I will discuss what all of this entailed in future articles.

Rep. Gary Sherman, D-Port Wing, sits on the Wisconsin Legislature's Joint Finance Committee. Both the Assembly and Senate are debating the committee's approved budget proposal this week.

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