Contact:  Todd A. Berry 
608.241.9789 or wistax@wistax.org
December 4, 2008

How Big is the State Deficit?
WISTAX Takes Second Look at State Assumptions

MADISON—A potential state budget deficit of $5.4 billion (b) by mid-2011 has attracted considerable attention. Yet a new report from the Wisconsin Taxpayers Alliance (WISTAX) cautions that such figures can be misleading because they are heavily based on assumptions.

In its report, "State deficit: How big? Why?", WISTAX points out that more than half of the estimated shortfall is predicated on state officials granting $2.76b in new spending requests during 2009-11. A nonpartisan public policy research organization, WISTAX notes that granting those spending requests and funding past state promises (the "structural deficit"), would result in state expenditure growth of 8.0% next year and 3.1% the year following. The report questioned that assumption since annual state general fund spending increases have averaged only 3.4% over the past decade.

In addition to assuming major expenditure increases, state deficit predictions also presume that state officials will take no action to close the deficit over the next two-and-a-half years. Of course, how realistic these forecasts are hinges on what can be projected 31 months hence about the economy, federal actions, state tax collections, and expenditures. Current projections show tax collections for this year and the next two years totalling $1.33b below 2008 collections.

A third factor contributing to the estimated deficit is what WISTAX calls years of unwise fiscal planning. During the ’90s, the state overcommitted to new programs for schools, health and welfare, corrections, and tax relief. It began every budget after 1995 with a "structural deficit" —future unfunded commitments—of between $0.6b and $1.3b.

"With headlines and politicians repeating deficit estimates of more than $5b, the public is left thinking that a solution must require at least $5b in permanent spending cuts or tax increases," WISTAX concludes. "Yet much of that figure assumes unrealistic spending requests, structural imbalances carried over from the past, and a failure to address fiscal problems immediately but instead allowing them to compound and grow."

For a copy of the WISTAX report "State deficit: How big? Why?" write: WISTAX, 401 North Lawn Ave., Madison, Wisconsin 53704; e-mail, wistax@wistax.org; or call 608.241.9789. o

The Wisconsin Taxpayers Alliance, founded in 1932, is the state’s oldest and most respected private
government-research organization. Through its publications, civic lectures, and school talks, WISTAX aims to improve Wisconsin government through citizen education. Nonprofit, nonpartisan, and independently funded, WISTAX is not affiliated with any group—national, state, or local—and receives no government support.

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