Wisconsin state government is facing the most significant financial challenge in its history. The state budget is out of balance by $3.2 billion. The irony here is that the crisis comes close on the heels of the 1990s, when state government seemed able to do anything. That was the era of elevated spending, new programs, and tax cuts – something for everyone. In the wake of that period of prosperity, the new century has brought fiscal famine to Wisconsin.
The current budget shortfall will require the Governor and the Legislature to make deep cuts that will affect nearly every citizen. One would never have imagined a problem of this magnitude a few short years ago, when the economy was robust and state government seemed able to attack nearly every problem with a new spending initiative. The feast-or-famine nature of Wisconsin’s budgeting practices is extraordinary and stands to disrupt the lives of millions of citizens.
Recovery will entail two steps. Step one requires balancing the budget in the short term. As this paper is being written, the Governor and the Legislature are in the process of making the difficult decisions needed to bring spend- ing back within the bounds of expected revenues.
Step two will require significant changes in the way Wisconsin goes about the business of budgeting. That broad- er issue is the focus of this study. It examines the budget system that has yielded Wisconsin’s feast-or-famine budgeting cycles. Where are the roots of the problem, and what are some of the lessons that we should learn from this experience? And, most importantly, what changes should be made to ensure that future citizens are not subjected to more feast-or-famine budgeting? If step two is not taken, we will undoubtedly see another budget deficit within a few years.
This study will show that Wisconsin’s budget deficit is the result of three events: the softening of the economy which began in 2000; the reduction of personal income tax rates that went into effect in 2000; and the elevated spending level left over from the 1990s. Had any one of these three events not occurred, there would be no shortfall today.
The fact is that all three did occur, creating a perfect budget storm. And unless fundamental changes are made in the way Wisconsin prepares budgets, the same result will occur again and again.
