Wisconsin Gov. Tony Evers’ administration is treading cautiously as it assembles a new two-year budget over concerns that the COVID-19 pandemic could cut more deeply into state revenues than forecast.
Modest revenue growth is projected over the course of the biennium that begins July 1, enough even to make a small deposit into its rainy day fund this year, but “unprecedented volatility” remains a concern due to the pandemic and uncertainty over the prospects for a new federal relief package, the Department of Administration warns in its
Without new federal funds to support spending on the pandemic, the state will need to divert its own funds for testing, contact tracing and to support for local public health as revenues will grow only modestly. “I instructed agencies earlier this year to cut more from their budgets to put us in the best position for next year, but there’s a long road ahead of us,” Evers said in a statement that accompanied the Nov. 20 report.
The state cautions of the risks ahead even as it’s faring better than many other states struggling to manage through multi-billion dollar budget deficits. Evers will submit his two-year budget – the second of his administration -- to the legislature early next year.
The Department of Administration report provides a look at the current fiscal year and ahead to the next biennium.
The state is on course to close out the current fiscal year with a $1.2 billion general fund balance and if the numbers hold that would result in a $13 million deposit into the rainy day fund, known as the budget stabilization fund. The rainy day fund hit a peak of $762 million at the end of fiscal 2020 on June 30 after a $105 million deposit.
A revenue forecast early this year before the pandemic had the rainy day fund on course to hit the $1 billion mark at the close of the current biennium June 30.
While that’s no longer the case, the reserves still remain at peak levels and mark a stark change from a decade ago. In 2011 the general fund balance and budget reserve held a combined $102.2 million, according to the Wisconsin Policy Forum.
After trimming near-term budgetary spending, state revenue is projected to grow by $132 million to $17.66 billion this year, $353 million in the next fiscal year, and then $646 million to $18.66 billion in fiscal 2023.
The administration requested belt-tightening from agencies that were asked to hold most general revenue fund expenses steady with some exceptions like public school aid, but projected revenue still falls short of state agency requests. They exceed revenues by $1.19 billion in fiscal 2022 and $1.18 billion in fiscal year 2023. Such a discrepancy is typical as the number represents agency requests, not a budgeted appropriation.
Like other states, Wisconsin hopes the federal government eventually comes through with a long-stalled aid package as CARES Act funding expires at the end of the year.
“We will continue to take the steps necessary toward economic recovery in Wisconsin, but the federal government must get back to work now to pass another relief bill to help Wisconsin businesses, farmers, families, and communities,” DOA Secretary Joel Brennan said.
Wisconsin’s CARES Act allocation totaled nearly $2.3 billion with the state receiving about $2 billion and eligible local governments collecting the remainder.
The administration is hosting a series of virtual public budget sessions through December. The first on Nov. 17 focused on healthcare and public health. The second is set for Wednesday on the environment, infrastructure, and the economy with one on criminal justice reform set for Dec. 8, and schools and education on Dec. 16.
Debt Management
Debt management is a “major priority” with an eye on savings, the report said. The state previously defeased early $56 million in debt service cutting costs in the current biennium by $4.4 million with about $28.8 million of savings expected in the next biennium.
Capital Finance Director David Erdman said with rates remaining low refunding options are continually being evaluated and the pandemic has yet to negatively impact borrowing plans although the state remains on alert.
“While there have been no negative impacts, the pandemic is not over and secondary or contingency plans still need to be reviewed on a regular basis,” Erdman said. “Borrowings to address capital needs and refunding transactions that benefit from the current low interest rate environment have been completed.”
The state’s GOs are rated AA-plus by Kroll Bond Rating Agency with a positive outlook, Aa1 with a stable outlook by Moody’s Investors Service, and AA with a stable outlook by S&P Global Ratings.
While the governor and his budget team lobbies for additional relief, Erdman is pressing for the continuation of Federal Reserve programs like the short-term Municipal Liquidity Facility lending vehicle enacted to help stabilize the market earlier this year. The Trump administration has said it will allow them to expire at the end of the year.
“There is uncertainty from the current pandemic, and from a market macro perspective, it would be ideal for the Federal Reserve to extend the Municipal Liquidity Facility into 2021. At a minimum, the backstop from such facility provides support and stability for the municipal market that still needs to address many unknowns relating to the pandemic.”
The state also continues to manage disclosures related to the pandemic’s impact on finances and budgets.
“Guidance from the SEC Office of Municipal Securities and the disclosure principles from the Disclosure Industry Workgroup provide excellent direction for municipal issuers to follow for disclosures related to this pandemic,” Erdman said. “This office is planning to work with municipal advisors and bond counsels to address the benefit that good disclosure from frequent issuers within the state- boundaries.”
Foxconn
The forecast anticipates that the state won’t have to honor over the next several years the much ballyhooed
The state, Mount Pleasant, and Racine County “have invested significant resources in real estate, site development, and infrastructure over the last three years in furtherance of the project,” the report notes.
The company's choice of Wisconsin for what was supposed to be a LED display production plant was announced by Walker, President Donald Trump and Foxconn leaders at a White House ceremony in July 2017. The $3 billion in tax incentives made it the largest subsidized incentive package ever awarded in the state. Local incentives and subsidies totaled $764 million to help cover the costs of public improvements, land acquisition and other expenditures for the project.
“Based on Foxconn's activities in calendar years 2018 and 2019, WEDC has determined that Foxconn has not been eligible for credits under the contract, with the 2019 eligibility determination currently subject to a good faith negotiation period with Foxconn that will lapse at the end of November 2020.” The company had challenged the 2020 declaration. The projections assume no payment of credits to Foxconn in fiscal years 2020-21, 2021-22, and 2022-23.
Legislature
Budget agreement may be tough to find after Evers, a Democrat in his first term, butted heads on his first budget package in 2019 with Republicans who control the Senate and Assembly. They opposed his
Evers signed the $81 billion budget package sent to him by the legislature with 78 vetoes that allowed him to increase the GOP’s allocated $500 million increase for education funding by another $65 million.
The GOP retained control of the legislature in the November election.
The friction was amplified this year when the GOP challenged the governor’s use of his emergency powers to declare a Safer at Home order in March and declaration of a public health emergency that closed non-essential businesses and schools and limited the size of gatherings. The courts have overturned some restrictions concluding they exceed the administration’s powers.
Evers last month rolled out a $541 million relief package that earmarks funding for testing, tax breaks, and other measures but the GOP has voiced skepticism on the cost and outlined its own priorities. The
Evers announced Wednesday that he will deliver the annual State of the State address Jan. 12 and the budget address Feb. 16.
