After the completion of the 2015-17 biennial budget bill, legislators continued to propose a wide variety of changes relating to tax policy. They introduced scores of bills to create or expand tax breaks, and also a number of bills relating to the budget process.
The aspirations for new and expanded tax cuts ran into a very substantial impediment after the Legislative Fiscal Bureau announced in January that tax revenue during the 2015-17 biennium was expected to be $158 million less than previously expected. Although some other budget re-estimates partially offset the revenue loss, the January figures reduced the state’s projected balance at the end of the 2015-17 budget by $94 million.
The downward revisions in budget projections threw cold water on legislators’ hopes for proposals that would have cut taxes further or would have increased spending. So it didn’t come as a major surprise that once the session ended on March 15, very few spending or tax cuts bills had been approved.
We’ve pulled together the following brief summary of what happened or didn’t happen on some of the major bills relating to taxes and to proposals for changes in the budget process.
Corporate tax changes
The tax proposal we were following most closely, SB 503, contained a broad set of changes in corporate tax laws, which the Department of Revenue (DOR) estimated could cost the state as much as $384 million per year! Because of the initial cost estimate for that bill, coupled with the fact the window for passing it was rapidly closing, the coauthors trimmed SB 503 from nine different provisions down to just two. The changes essentially eliminated the fiscal effect, at least in the short run.
The amendments vastly improved SB 503, but we are disappointed that one of the remaining portions is likely to impede DOR’s authority to get relevant documents from the large corporations that sometimes obstruct audits of their financial arrangements. The bill was approved on party-line votes in both houses, and it has been signed into law (Act 218).
Reforms relating to WEDC tax credits and subsidies
Over the past year or so, there has been quite a bit of media coverage of questionable practices relating to tax credits, loans and grants awarded by the Wisconsin Economic Development Corporation (WEDC). Thus, it wasn’t surprising that legislators introduced a number of bills to reform the business subsidies granted by WEDC. Unfortunately, none of those measures was approved by both houses.
The reform legislation that enjoyed the broadest support was AB 669, which was introduced by an Assembly Republican (Rep. Kerkman) and a Senate Democrat (Senator Hansen). It would have created a new Class E felony for certain activities relating to fraudulently obtaining benefits from WEDC. Although it was approved by a voice vote in the Assembly, AB 669 died in the Senate. That was disappointing and a bit surprising after all the rhetoric over the past year about combatting fraud in other public assistance programs.
Democrats introduced several other bills to make reforms relating to WEDC subsidies. For example:
- SB 211 would make companies that outsource jobs ineligible for state tax benefits, grants and loans.
- AB 886 would prohibit the use of any loan, grant, or tax credit fromWEDC to relocate jobs outside of Wisconsin or to reduce net employment in the state, and would require the recipients of such subsidies to report to WEDC within seven business days after eliminating any jobs in Wisconsin or relocating them outside the state.
None of these other reform proposals received a floor vote in either house.
Other significant tax proposals
Sales tax exemption for building material – A tax cut bill that enjoyed very broad bipartisan support is SB 227, which expands the sales tax exemption for material used in the construction of buildings owned by school districts, other local governments, and certain non-profits. It’s expected to reduce state revenue by $6.4 million per year, but will yield significant savings for schools and municipalities. It is now Act 126.
Sales tax holiday – A bill introduced fairly late in the session would have created a “back to school” sales tax holiday for certain goods during the first weekend of August each year. The bill, AB 781, was quickly approved by the Joint Survey Committee on Tax Exemptions, even though it would reduce state sales tax revenue by about $13 million per year and county revenue by another $1 million each year. Sales tax holidays are a popular idea among some legislators, despite the fact that conservative and progressive tax policy think tanks agree that they are an ineffective way to help consumers or to promote economic growth. AB 781 died at the end of the session because legislators decided that the state couldn’t currently afford the fiscal impact, but it’s a proposal that will probably be back next session.
Local option for sales tax increase for roads – A bill that enjoyed strong support among many local officials would have authorized counties to hold a referendum on a local 0.5% sales tax that could be used for road & highway repairs and construction. The bill, AB 210, was unanimously approved by the Assembly Transportation Committee in December, even though some Democrats complained that the proposal would not allow any of the new funding to be used for mass transit systems. Despite the bipartisan support for a new revenue source for road repairs, AB 210 never got a floor vote – perhaps because Assembly leaders were uneasy about having some or their members go on record supporting a tax increase.
Undoing cuts to the tax credits for low-income households – Democrats were again unsuccessful in advancing two bills that would increase the refundable tax credits for low-income households by undoing the changes made in the 2011-13 budget bill. Specifically, AB 84 would reverse the cuts to the state’s Earned Income Tax Credit, and AB 85 would reinstate the process of annually adjusting the Homestead Credit to reflect inflation. Neither bill got a public hearing, and motions offered by Rep. Riemer to bring them to the floor were defeated on party-line votes.
Budget restrictions and process changes
Legislators introduced a number of bills and resolutions to change the process for developing and reviewing the biennial budget and tax legislation, and a bill to redefine what constitutes a balanced budget. Several of those bills got considerable attention, but ultimately only one of the notable proposals was enacted.
Requirements for agency budget requests – The budget process legislation that was enacted is SB 407 (now Act 201), which requires that each agency’s biennial budget request include a proposal for how the agency would handle a budget freeze and how it would cut 5 percent. That change is likely to reframe budget deliberations by focusing most of the attention on freezes and cuts. WCCF unsuccessfully proposed amending the bill to require that agency budget requests should also include an estimate of the cost of maintaining current programs, which is a key piece of information that should also on the table during budget debates. (Read more in this Wisconsin Budget Project analysis.)
Expediting new tax breaks – More than 50 years ago the legislature created a hurdle in the legislative process to make it harder to pass new tax exemptions. They required that all proposals to create or amend state tax breaks must be reviewed by the Joint Survey Committee on Tax Exemptions (JSCTE), which includes legislators from both houses and several outside experts on tax policy. However, legislators in both parties now seem to agree that the committee is no longer serving a useful function, and committees in both houses of the legislature voted unanimously for bills to eliminate the JSCTE. Although the Assembly version, AB 641, was approved by a voice vote in that house, it never got a floor vote in the Senate. (This Wisconsin Budget Project blog post examines the arguments on both sides of the issue.)
Constitutionally changing how we measure the state budget balance – Some of the accountants in the legislature proposed amending the Wisconsin Constitution to require the use of Generally Accepted Accounting Principles (GAAP), rather than continuing the current process of balancing the budget on the basis of cash accounting. Their proposal – SJR 55 and AJR 66 – would also set a schedule for eliminating the very substantial deficits the state now has when the budget is analyzed on the basis of GAAP. Although the bill was approved by a Senate committee, it didn’t get a floor vote in either house. (A Budget Project blog post explains why we would prefer that Wisconsin doesn’t become the first state to make GAAP a rigid requirement by putting it into the state constitution.)
Conclusion
The reduced revenue projections released by the Legislative Fiscal Bureau in January had a chilling effect for the consideration of increased spending and new tax cuts. Following the release of those figures, no tax cuts of note were enacted, but many of the proposals that were considered over the past year will be back next session.
The most significant budget-related bill that was enacted is probably a bill that was approved without much fanfare, but is likely to have long-term implications on state budgeting by changing the terms of the debate. That measure, which is now Act 201, shapes the budget options that will be presented to the Governor and legislators in ways that could tilt the budget process in favor of continued cuts. Other significant budget process changes died at the end of the session, including penalties for corporations that commit fraud to obtain tax credits or other public assistance from the Wisconsin Economic Development Corporation.
