In 2002, state and local government spending in Wisconsin was 7.7% above the national average while our income level was 2.8% below the national average
The levels of government spending and taxes, and the state budget process, have been the subjects of ongoing policy and political debate in Wisconsin for many years. Many observers have argued that spending and tax levels in Wisconsin are too high, overburdening the state’s citizens and hurting economic growth. Other people have argued that the state budget process needs to be improved so that the state avoids boom and bust budget cycles.
Establishing clear and comprehensive spending limits and budget guidelines could help address these concerns about high taxes and a flawed budget process. Comprehensive spending limits could help Wisconsin establish spend- ing and tax levels that are more in line with the ability of the state’s citizens to pay and more in line with the levels in other states. By smoothing out the trajectory of spending increases, budget guidelines could also help Wisconsin avoid the boom and bust budget cycles the state has experienced in the last several decades.
A spirited public debate has been taking place since a specific proposal to establish spending limits in the state constitution, Assembly Joint Resolution 55 (AJR 55), sometimes referred to as the Taxpayer Bill of Rights (or TABOR), was introduced in the Wisconsin Legislature in November 2003. Other proposals to establish spending limits and budget guidelines have also been discussed, including Senate Joint Resolution 76 (SJR 76), which was introduced in an extraordinary session of the Legislature in July 2004.
There are several reasons why this topic is of great interest at this time. The recent economic recession has squeezed incomes and made people more acutely aware of tax burdens. Ongoing discussions about the state’s eco- nomic future, income levels, and job opportunities have highlighted the negative impact a high tax burden has on our economic growth rates. In addition, state budget difficulties in the last two bienniums have heightened concern about the state budget process. For all of these reasons, the topic of spending limits is being discussed more widely now than at any time since shortly after the state went through severe economic and budget difficulties in the early 1980s.
In the end, the Legislature as a whole did not vote on any spending limit proposals in 2004. However, the concerns that prompted the introduction of spending limit legislation in the past legislative session mean that proposals to adopt limits will be debated in the next legislative session. The challenge for Wisconsin policymakers is to develop legislation that will address the concerns about the state’s spending levels in a way that fits with the policy preferences of Wisconsin residents, and that is workable in practice.
This paper provides background information to help put the discussion about spending limits and budget guidelines in perspective. It reviews the types of comprehensive spending limits that are now in place in other states. It reviews past discussions of comprehensive spending limits in Wisconsin and discusses the limited guidelines that have been adopted in different forms in Wisconsin. It discusses Wisconsin’s spending levels and explains why spending and tax levels matter to a state’s economic growth rate. It discusses how guidelines could help improve the budget process in Wisconsin. It looks at different alternatives for spending limits and asks how those options, if they had been implemented in the past, would have affected spending levels and government services in Wisconsin.
The theme of this paper is that spending limits and budget guidelines are key components of a responsible fiscal management approach, whether put in place through a constitutional amendment, through state statutes, or by other means. Comprehensive limits would help moderate Wisconsin’s above-average spending levels, reduce the burden of taxes on Wisconsin residents, and boost economic growth, while allowing the state and local governments to maintain vital government services. As other states have shown and as commission studies in Wisconsin have concluded, limits can be designed in a sensible, reasonable, and workable way.
Wisconsin has persistently had high spending and tax levels. Total state and local government spending in Wisconsin was 7.7% above the national average in 2002. Total state and local taxes were even farther above average (12.8% above the national average), and property taxes and individual income taxes were extremely high (27.0% and 34.5% above average, respectively).1 These spending and tax levels are a burden on Wisconsin’s citizens and a drag on the state’s economy.
Adopting spending limits in order to establish reasonable goals for spending and tax levels is not a new or radical idea. Many states have comprehensive spending limits, defined as limits that cover most state spending funded by general tax revenues and that may also cover spending funded by non-tax revenues at the state level and spending funded by tax and non-tax revenues at the local level as well.
The concept of adopting comprehensive spending limits in Wisconsin at the state and local levels was thoroughly studied and endorsed by the Wisconsin Expenditure Commission in 1986, but limits have been only partially implemented in Wisconsin. At present, Wisconsin has a patchwork of different limits for different units of government, some of which are more comprehensive and stringent than others. Despite the fact that these partial limits are in place, spend- ing and taxes in Wisconsin remain stubbornly high.
If comprehensive limits tied to personal income growth had been adopted in Wisconsin in the 1980s at the time of the Wisconsin Expenditure Commission report, Wisconsin’s overall state and local spending and taxing levels would be more moderate now, and would be roughly at the national and regional averages. Spending at these levels would arguably enable Wisconsin to provide vital government services with a noticeably lower tax burden. A strong case can also be made that adopting comprehensive guidelines in the 1980s would have helped Wisconsin avoid the boom and bust budget trends the state has experienced since then.