by Rep. Mark Gottlieb
In a study completed last year, the Pew Center on the States ranked Wisconsin as one of America’s ten most “fiscally-challenged” states. As we struggle to get our economy and state finances back on track, it’s important to understand how we got here and to begin a discussion of the long-term reforms that will be needed to prevent such a crisis from recurring in the future.
State tax revenues tend to rise and fall in tandem with the economy. Other things being equal, when times are good, income, sales, corporate, and excise tax collections increase. When economic activity slows, they decline. Over many years, we’ve irresponsibly ignored this harsh reality. When times were good, we spent all our revenues on creating new programs and expanding existing ones. When the economy slowed, the programs and spending remained, but the taxes declined. Simply put, a combination of irresponsible spending and a failure to plan for the long-term future have led us to where we are today.
Together with a group of my Republican colleagues in the State Assembly, I’ve put forward a simple yet comprehensive proposal that may be part of the solution. It’s a constitutional amendment that we call the Wisconsin Fiscal Responsibility and Stability Amendment (Wisconsin First). We believe this proposal has the potential to improve Wisconsin’s fiscal condition by imposing greater discipline on state spending, creating a reasonable “rainy day” fund, and providing a mechanism for future property tax relief.
The amendment itself is straightforward. First, it requires the state to deposit roughly one-half percent of all general taxes collected into a constitutionally protected “Fiscal Responsibility Fund.” If an especially healthy economy causes tax collections to exceed 6.5 percent of statewide personal income, the deposit is increased to the amount of that excess. Money can only be withdrawn from the fund during an economic recession or unforseen emergency. The maximum balance in the Fiscal Responsibility Fund would be limited to ten percent of the annual budget. At that point, if taxes continued to exceed the 6.5 percent threshold, the state would be required to return the excess to taxpayers in the form of a property tax credit.
Despite its simplicity, the Wisconsin First proposal has a number of important advantages. Forcing state government to save a small amount from every budget will lead to more stable finances and reduce the temptation to resort to accounting gimmicks, fund raids, and tax increases to balance the budget in future recessions. The amendment will also help control state spending. When tax revenues exceed projections, lawmakers are always tempted to spend those taxes on new or enhanced government programs. The Wisconsin First Amendment eliminates that temptation by placing taxes collected above a fixed amount “off-limits” for spending. When the rainy day account is fully funded, those higher taxes must be eliminated or returned in the form of a property tax credit. The amendment leaves no other option.
Creating a budget stabilization fund is certainly not a new or unique idea. In fact, Wisconsin has had one in place for many years, but we’ve lacked the discipline to fund it. As a result, despite years of past growth, we entered the recession with a bad combination of high spending, lower tax revenues, and an empty savings account. Various other laws have been enacted to impose discipline and restraint on the budget process, however, a law passed by one legislature is never binding on future legislatures. So, despite the best intentions of their authors, those laws are roughly ignored by future decision makers. Putting the Wisconsin First proposal into the form of a constitutional amendment means it can’t be ignored or bypassed as earlier reforms have sometimes been. It assures that the fund can only be used during times of recession or emergency, and not raided like the transportation and patients’ compensation fund have been. It also means that the final decision on this idea will be made by the voters, since all constitutional amendments must be approved by a state wide vote after passing two consecutive legislative sessions.
The “Great Recession” exposed many bad practices that will continue to endanger Wisconsin’s fiscal health if we fail to act. In these times especially, taxpayers have the right to expect the fiscal responsibility that comes from longer-term planning and spending restraint. The Wisconsin First proposal will not fix all that is wrong with our state’s finances, but, together with other needed reforms, it is a worthwhile start.