State Budget Remains Stalled—What’s Holding It Up?

Typically, the state Legislature’s budget-writing Joint Finance Committee (JFC), comprised of eight senators and eight representatives, begins its review of the governor’s budget in February and completes its work in late May or early June.  Then comes floor debate in the two houses and the completed budget is sent to the governor for his review and signature (or vetoes).  If all goes well, this process is completed by July 1.

This year, however, the JFC not only hasn’t completed its review, it hasn’t met publicly since June 15, and it isn’t clear when the committee might meet again to wrap-up its work on the state’s two-year taxing and spending blueprint.

According to research recently published by the non-partisan Wisconsin Taxpayers Alliance (WISTAX),  looking back over the past 40 years, the pending budget is already one of the latest.  Writes WISTAX:

“Since 1977, JFC has acted on 20 biennial budgets, passing them in May, three times; June, 14 times; and July (7/2/15), once.  The committee also acted on the 1995-97 budget by June, though the committee didn’t approve the transportation portion until October. The 1997-99 budget cleared the committee in September.  In the latter two cases, party control of the legislature was split.”

What’s holding things up this time around?

For starters, the Republican majorities in the state Senate and Assembly remain far apart in their preferred approaches to transportation funding and tax cuts.  A look at their most recent proposals is instructive.

On the transportation side, the Senate’s most recent offer, made July 18, calls for $712 million in additional borrowing for road projects, with $350 million backed by general fund borrowing and $362 backed by transportation fund borrowing. This is well-above the $500 million Governor Scott Walker proposed, which Assembly leaders criticized as too high when the governor proposed it.  Assembly leaders have called for either no new borrowing or no increase in bonding without increased revenue to pay for it.

On the tax side, the July 18 Senate GOP plan calls for repealing the personal property tax, paid by businesses on their machinery, tools and equipment, starting in the second year of the biennium.  To fund a new $239 million state aid program to make hold harmless payments to local taxing jurisdictions that impose property taxes, Senate Republicans would scrap the Governor’s proposed income tax cuts and use those dollars (an estimated $203.5 million over biennium) to fund the aid program.  While many Assembly Republicans would also like to repeal the personal property tax, they also support income tax cuts, including repealing the alternative minimum tax.  However, they have indicated they don’t think the state has the money to do both in this budget.

After the Assembly declined to accept the Senate’s most recent offer, the Governor re-entered the negotiations, hoping to break the impasse by offering a deal.  He would agree to scrap his proposed income tax cuts and spend the $203 million his original budget would have devoted to those cuts instead on road construction, if lawmakers would pledge not to increase gas taxes or vehicle registration fees.

Assembly Republicans quickly accepted the offer.  On Thursday (July 20) Assembly leadership and Assembly Joint Committee on Finance (JFC) members released a letter stating they would accept a compromise on transportation funding offered by Gov. Scott Walker.  According to the letter, the governor also offered the possibility of no new transportation bonds.

Earlier this month, the governor issued a proposal to the legislature lowering transportation bonding by $200 million to $300 million.

Initially the potential deal looked like it could break the budget stalemate, but Senate Majority Leader Scott Fitzgerald (R-Juneau) was cautious to accept. Instead of shifting the income tax cut funds to transportation, Senate Republicans prefer to use the funds to eliminate the personal property tax , a key element in their budget proposal.  After huddling in a caucus to discuss the governor’s proposal and the Assembly letter, Senate Republicans emerged saying there was no deal.

In terms of the likelihood of any JFC action soon, we note that shortly after the Assembly announced it would accept the governor’s offer, JFC co-chair Rep. John Nygren (R-Marinette) sent another letter to his fellow JFC co-chair, Sen. Alberta Darling (R-River Hills) stating that JFC should resume its work as early as next week. However, with the Senate reluctant to give up the personal property tax repeal, Majority Leader Fitzgerald and Sen. Darling told the press that a JFC meeting next week was unlikely–with Sen. Fitzgerald calling such a timeline “aggressive”–but left open the possibility for a meeting the first week of August.

Another complication that has arisen in recent weeks is that Wisconsin has apparently emerged as a top potential site for a major manufacturing facility of Taiwanese-based electronics giant Foxxcon that could bring hundreds, if not thousands of tech jobs to Wisconsin. However, luring Foxxcon, known for assembling iPhones, flat-panel TV screens and other high-tech equipment, would likely require infrastructure improvements and could possibly require tax incentives.

Foxxcon is said to be looking at several states as possible locations for its first U.S. production facility, which has been described as a once-in-a-lifetime economic development prize.  Michigan and North Carolina have already included business incentives in the state budgets they recently passed.

Although, at present, it does not appear likely that Wisconsin’s 2017-19 budget bill will contain such incentives; however, lawmakers have indicated the sooner they can pass the budget bill, the sooner they can begin putting together a legislative package designed to attract the tech giant and the jobs it could bring.