What to Do in Tight Times?

Times are tight – for families and for the state. As we make less and spend less, the level of money collected by the state fell short of expectations.  This past week the Senate received a briefing on the state’s financial problems. What we learned is enough to sober even the toughest optimist.

The financial downturn has resulted in a $650 million budget shortfall in just the next fifteen months. Because of national economic trends, state legislatures across the country are facing similar situations. To complicate matters, the federal government’s belt tightening also means fewer dollars available to the states.

The questions the state faces are really not so different from a family trying to balance a budget in tight times. Do we have a savings account we can use? Can we keep less in our checkbook? How can we cut our spending? Where can we get extra money – maybe from Uncle Sam in this case? Can we postpone some spending?

The Governor has proposed one solution, the Assembly proposed another. This week the Senate will vote on a third proposal. It is likely all three solutions will be reconciled in a conference committee – the same scenario the state faced when writing the state budget last summer.

Here are a few of the decisions that need to be made:

  • How much money should be used from the Budget Stabilization Fund - the state’s ‘rainy day fund’? This fund includes money saved from the sale of state assets and other cost cutting measures.
  • How low should the state’s Statutory Balance go? This is the state’s checkbook balance. The state cannot spend into the red – so there must be some money left for unexpected expenses.
  • How much can the state lower spending – on top of the $200 million already called for in the state budget? This means tough decisions need to be made on how to spend taxpayer’s money. The choices sometimes seem impossible - do we fund domestic violence programs or rural roads?
  • Where can the state gain addition money from those who owe taxes but are not paying?
  • Is there additional money the state can gain from the federal government?
  • Can some spending be pushed off into another year? What are the long term consequences?

To solve the problem, Senators, Representatives and the Governor bring different ideas to the debate. The Governor proposed an overall $330 million cut in state services - including the $200 million called for by the recent October budget agreement. He also ordered a freeze on state travel and on hiring for state jobs currently open.

Assembly Republicans want to make additional cuts in state spending. Their proposal would slash another $250 million on top of the $200 million cuts called for in this year’s state budget. Senate Democrats also want another round of cuts but proposed a reduction of $40 million.

Senate Democrats are also interested in collecting money from those not now paying taxes. One proposal closes a loophole that allows large multi-state companies to ‘shelter’ their profits by shifting the profits to states that do not collect taxes; a second proposal would streamline the collection of sales tax and encourage companies to collect tax on the sales of products over the internet.

The first idea - combined reporting – was proposed by Governor Thompson several years ago. The second idea - stream lined sales tax - is a project the Department of Revenue has been involved in for several years. Both ideas have been adopted by almost half the states in the union.

In considering what decisions should be made, it is helpful to remember that we have had several years of state belt tightening. The agriculture budget, for example, has seen 16 years of cuts between eight and fifteen percent. Cuts now are not cutting the fat but cutting the bone. Budget cuts will have an effect on the services the state provides.

Have ideas on how the state can navigate tough financial times? Let me know! Write me at P.O. Box 7882 Madison, WI 53707-7882 or email Sen.Vinehout@legis.wisconsin.gov .