DOR Budget Sheds No Light on DCF Proposal to Cut TANF Support for the Credit

Will the state’s Earned Income Tax Credit (EITC) be cut again in the 2013-15 biennial budget, after it was reduced in the last budget?  I noted in a Budget Project Blog post last week that the budget request unveiled last Monday by Department of Children and Families’ (DCF) would cut one of the funding sources for the credit.  Beginning in the second year of the coming biennium, DCF proposes cutting $37 million from the portion of EITC funding that comes from the block grant known as Temporary Assistance for Needy Families (TANF).

Although that proposal worries us a little bit, I think it’s well-intended, and we will be firmly behind it if the intent is to replace that particular funding source with state tax dollars (aka General Purpose Revenue or GPR).  

Since the GPR portion of EITC funding is a Dept. of Revenue budget line, rather than part of the DCF budget, I thought the DOR request might reveal the Walker Administration’s intentions.  However, the Revenue Department’s voluminous budget proposal doesn’t indicate whether this credit for low-income working families would be cut or maintained (though it does propose some relatively small cost-saving changes to the EITC).  My guess is that the DCF intent is not to cut the credit, but to undo the decision made in 2011 (in both the budget repair bill and the biennial budget) to use $37 million a year of TANF funds to supplant GPR support for the EITC.  The decision last session forces DCF to cut funding needed for the W-2 program, child care subsidies and YoungStar.  WCCF would strongly support a reversal of that $37 million raid of TANF funding – provided that the DOR budget protects the EITC.

However, since the DOR budget is silent on this issue, my guess is that DCF unilaterally decided that the next budget bill should undo last session’s funding shift. I probably would have done the same thing if I were working on the DCF budget — especially since the GPR appropriation for the EITC is a “sum sufficient” budget line, meaning that the default position is that GPR funding will make up the gap if need increases or another funding source declines.  Nevertheless, we’re sure that this is just a funding shift and not another cut in the state EITC, I’ll fear for the fate of this important tax credit.

In addition to monitoring that issue, we’ll be closely watching what Congress does in a lame duck session or early next year with respect to the federal EITC.  If Congress approves the House budget plan rather than the President’s proposal, that would end the EITC improvements initiated in 2009 – increasing the federal credit for families with three or more children and easing a penalty in the credit for married couples.

Since the state EITC is calculated as a percentage of the federal credit, cutting the latter would also result in a reduction of the state credit – unless the state adjusts its EITC formula. In light of the sharp rise in poverty in our state during the recession, and the importance of the EITC in helping low-income workers, we think maintaining support for the federal and state credits should be a very high budget priority.

Jon Peacock