Wisconsin’s total budget reserves have hit their highest level in four decades; however, that finding comes with some caveats. The State’s reserves are lower than the national median and are projected to fall over the next two years as high corporate tax revenues decline.
According to a recently released report from the Wisconsin Policy Forum, a nonpartisan organization that monitors state and local government finances, Wisconsin’s budget reserves are at a forty-year high. The Forum’s Research Director, Jason Stein, wrote the research brief.
He says that the growth follows an increase in corporate tax collections, which in turn are due in part to a strong economy last year and the 2017 federal tax overhaul. In the event of a fiscal emergency, a combination of the general fund and the state’s rainy day fund are enough to keep Wisconsin running for about five weeks
“You add those two things up [and] you get more than 1.7 billion dollars, and then obviously there’s inflation and things like that so you can’t just compare raw dollar figures going back decades and have a fair comparison,” Stein says.
“So, we look at those reserve funds as a share of overall general fund spending that happens in a given year. When you do that, our reserves are nearly ten percent, so they’re enough to run state government at an average spending level for about five weeks and that is the highest level that we’ve seen in the state of Wisconsin since the late 1970s,” he adds.
Just like an individual’s own “rainy day” fund or savings, a state’s reserves provide a financial cushion to mitigate any unexpected decreases in revenue.
“If taxes are falling short because you’re in a recession, it can be really important to not raise taxes too much [and] not cut spending too much because that could further affect the economy in the State and the residents of the State at a difficult time,” Stein emphasizes.
Still, Stein says to exercise caution when looking at these numbers and to note that states’ reserves tend to be high when the national economy reaches the peak of its current economic cycle prior to a downturn.
“I’m not predicting that that is going to happen, but it’s just a cautionary note that someone might see this and they might say, ‘Well, the State has all these reserves, so the State should consider tax cuts or spending increases and use that money rather than saving it for some problem in the future.’ [Or they might say the State] should just spend that money to make people’s lives better right now,” Stein says.
“That’s always something elected officials are going to consider. There’s always the argument for making people’s lives better in the here and now, but at some level there’s also a need to balance those priorities against making sure that we don’t have to do negative things to people in the State in the future because we don’t have enough reserves set aside,” he notes.
The Department of Administration’s Annual Fiscal Report shows the General Purpose Revenue tax collections increased $1.2 billion, or 7.4%, over the past fiscal year. The last time General Purpose Revenues rose by that much was just before the dot-com bubble burst and the 2001 recession.
The growth this fiscal year is due in part to increased corporate tax revenues. Those revenues were higher in fiscal year 2018 partially because corporations in Wisconsin shifted their taxable income from 2017 to 2018.
Because corporations won’t necessarily shift their taxable income from 2018 to 2019, corporate taxes were projected to go down for this fiscal year, but early revenue numbers have not mirrored that expectation.
Spokespeople at the Wisconsin Department of Administration did not immediately respond to a request for comment by the time of publication.