MADISON—The 2005-07 state budget is balanced only "on paper" because it uses some of the same techniques used by past governors and legislatures to avoid deficits, the Wisconsin Taxpayers Alliance (WISTAX) finds in its new report, "Unlocking the Mysteries of the State Budget."

One technique used in the 2005-07 budget is "accounting shifts." School levy tax credits are being increased in 2006-07 so that the state can claim it is providing "two-thirds" of school funding. However, $124 million in new credits will not actually be budgeted for until 2007-08, after the close of the current budget period. This move is a familiar one, since it was used by Governor Thompson and the 1995-97 legislature.

In addition, $65 million in state aid for tax-exempt computer equipment is being similarly delayed. These two items alone total $189 million, yet the budget as enacted last summer officially had a slim net balance of $5.4 million.

A Medicaid shortfall, recently estimated at $76.7 million, is also a problem. "Reporting a Medicaid Trust Fund deficit separate from the general-fund budget and then claiming the general fund is in balance is akin to a shell game," WISTAX President Todd A. Berry noted. Medicaid is a joint state-federal program that provides health care to low-income individuals and families.

If any of these items were properly addressed in the budget enacted last summer, the WISTAX report concludes, the general fund would have a deficit. WISTAX is a nonprofit, nonpartisan organization dedicated to public-policy research and citizen education.

Another feature of the 2005-07 budget that gave WISTAX researchers pause was the transfer of monies from special-purpose funds to the general fund. Although the most publicized is a $430 million transfer—accomplished by executive veto—from the transportation fund to the general fund in order to pay increased school aids, the Legislative Fiscal Bureau identified a total of $647.9 million being "used for purposes other than those for which the fund was generally established."

Many of these budget "gimmicks" are temporary fixes to ongoing budget problems. The state is expected to begin planning for the 2007-09 budget later this year knowing that it faces a "structural deficit" for 2006-07 previously estimated at $582 million.

What this means for 2007-08, WISTAX reports, is that before the state commits any money to new programs, or even to cover the rising costs of present services, it will have to find $582 million to fund existing commitments. Even routine employee-pay increases will not take precedence over prior promises.

Compared to other states, Wisconsin’s fiscal problems have been and will continue to be more significant. According to a recent study from the National Governors Association (NGA), the Badger State’s 2003-04 budget balance was 1.0% of expenditures, compared to a national average of 5.1%. The average for the four surrounding states in the region was 4.9%. Only three states—Michigan, Arkansas and Oregon—had smaller balances or deficits.

Wisconsin’s balance in 2004-05 was officially $4.1 million, or 0.0% of expenditures. The corresponding figures for the surrounding states (4.3%) and all 50 states (6.9%) were larger. No state had a smaller balance than Wisconsin, though Michigan and Arkansas were also at 0.0%. For the current fiscal year, 2005-06, both the state and NGA estimated Wisconsin’s balance at 0.5% of spending, compared to 4.4% for the region and 4.6% nationally.

In addition to data on the state’s fiscal health, the WISTAX report offers a comprehensive citizens’ guide to understanding Wisconsin’s complex biennial budget. Among some of the more interesting findings are:

• The state is slated to spend, from all sources (excluding bond proceeds), $52.7 billion over the next two years, of which $26.1 billion (49.5%) is from general purpose revenues (GPR)—mainly state taxes deposited in the general fund. Federal revenues account for another 25.6%.

• Individual income taxes alone account for 51.7% of general fund revenues. Combined with corporate income and sales taxes, the "big three" represent 92.1% of GPR revenues.

• Education dominates GPR spending during 2005-07, accounting for 50.4% of the total. Human services is second at 28.2%.

• In terms of who benefits from the GPR budget, various local governments and school districts lead the list, the beneficiaries of 56.7% of biennial expenditures. Aids to various individuals and organizations is a distant second at 19.7%. Shares devoted to running state government (16.3%) and the University of Wisconsin (7.3%) trail. School aids and tax credits alone represent 43.3% of the GPR total.

The report also provides a timeline of key events during budget preparation, details both all-funds and GPR revenues and expenditures, and discusses whether the 2004-05 budget was actually balanced.

For a free copy of The Wisconsin Taxpayer titled "Unlocking the Mysteries of the State Budget," write WISTAX, 401 North Lawn Ave., Madison, WI 53704-5033; e-mail wistax@wistax.org; visit www.wistax.org; or phone 608.241.9789. o