Public Policy Forum
The GOP's Political Conundrum
By Joe Murray
On February 18, Democratic Governor Jim Doyle unveiled his state budget proposal to the Republican controlled state Assembly and Senate. Soon thereafter, the Republicans were put in a difficult political box and the time has now come for the Republicans to make some tough political and policy decisions.
This political conundrum started with the governor's first televised state budget address, when Doyle told lawmakers and the public that his budget made good on his campaign promise to produce a balanced state budget that didn't raise taxes and protected K-12 education, shared revenues to local units of government and programs for the needy.
In the two months since Doyle introduced his budget proposal, the GOP-controlled Legislature has picked apart Doyle's budget on a number of major and minor points. What the GOP plans to do with the points of disagreement will become clear over the next five weeks.
A recent quote from Rep. Mike Huebsch (R-West Salem), a key member of the Joint Finance Committee, sums up the dilemma Republicans face as they tackle the $49 billion budget from Doyle: "You can easily point out the problems. The question now is how do you fix them? Now that we've heard from the public, do we just pass this and send it back to him? It would be irresponsible of him not to veto the whole budget he sent us. Should we fix the mess he sent us? I'm not sure we should unilaterally do that. We didn't run for governor."
Steve Bella, a spokesman for Jim Doyle responded this way: "I have to imagine they're having a difficult time coming up with an alternative. They've spent the last two months doing nothing buy criticizing, without offering a proposal. It means the governor's proposal is pretty solid. Republicans should be happy this governor has submitted a budget that doesn't include a tax increase."
The major state budget issues center on Governor Doyle's revenue sources to plug a $3.2 billion deficit. Republicans have criticized Doyle's funding choices as politically unpopular and, in one case, money that will not likely be available. To cover the $3.2 billion state budget deficit, Doyle has recommended:
- A $500 million shift of transportation fund money to help pay for K-12 schools and shared revenues to local governments. This transfer will delay important road projects outside of Milwaukee in districts most often represented by Republicans.
- A $200 million transfer from the Patients Compensation Fund to the general fund, which some in the GOP believe could be illegal.
- Additional gaming revenues totaling $200 million from re-negotiated compacts with tribes operating profitable gambling operations. Doyle's budget originally called for $237 million, but continuing negotiations between Doyle and the tribes have lowered expectations by $37 million. Republican leaders have filed a lawsuit because Doyle refused to allow for legislative approval of new compacts.
- Recapturing $434 million from the federal government in "intergovernmental transfer funds." Federal officials, including former Governor Tommy Thompson, oppose the plan and it's likely the Feds have already decided to change the funding reimbursement process. Legislative leaders argue this revenue source is not available for Doyle to help fix the budget problem.
In addition to the disagreement over Governor Doyle's funding sources, there are early warning signs that a sluggish Wisconsin economy will significantly lower the governor's anticipated revenue projections. Some project the additional revenue problem to be in the range of $160-$200 million.
The big question for the Republican majority in the legislature is this: If they refuse to accept Jim Doyle's revenue sources, what alternatives will they offer? Larger cuts to K-12 education funding? Larger cuts in shared revenues to local governments? Higher taxes or fees to help fill the gaps? And if they decide to offer their own comprehensive budget proposal to erase the $3.2 billion (and growing) deficit, what will the political consequences be in the fall 2004 legislative elections?
The big question for the Doyle administration is this: If GOP critics are correct and a significant portion of the governor's funding sources fail to materialize, and the sputtering Wisconsin economy fails to generate anticipated revenues for the budget submitted in February, how will Team Doyle respond? Will he break his iron clad promise of "no new taxes" to help balance the budget? Will Doyle continue to slash state government programs to an extent unacceptable to his Democratic constituencies? Can Governor Doyle find other funds to fill the deficit hole if the revenue streams he has already proposed fail to adequately address the growing state budget hole? Or does he simply say it's now the Legislature's problem and challenge them to offer solutions?
As the state budget process plays out over the next five weeks, Republicans will have to decide how they want to fix the deficit. Assembly Speaker John Gard (R-Peshtigo) told his caucus members that Assembly Republicans "have no plan to fill holes the governor has created." By early June we will all have a much better idea what the Republican plan is.
In the meantime, Governor Doyle is already on record as saying he will offer alternative revenue sources if revenue projections fall short.
While legislative Republicans have not yet decided on all the funding source issues in Governor Doyle's budget, they have outlined a set of principals that will guide them as they proceed to a budget resolution:
- Fix the budget deficit without raising taxes;
- Do not allow state budget cuts to be shifted to property taxes at the local level;
- Produce an honest budget without gimmicks like one-time money to increase spending;
- Spend less than the governor.
Stay tuned!
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Budget Could Include Property Tax Limitations
By Mike Theo
The Legislature has begun the process of amending Governor Doyle's biennial budget bill-a process that will involve intense debate for the next seven to 10 weeks (if the budget passes by the July 1 beginning of the new fiscal year). A central issue in this debate is also a key issue for
RealtorsŪ and the homeowners they represent-property taxes.
The Budget Proposal
The governor's budget proposes to reduce the state's commitment to fund K-12 school costs from the current two-thirds to 62 percent. In response, schools will likely make up this difference by increasing local property taxes to recover the loss of state revenues and thus property owners will end up paying approximately 37 percent, rather than the current 33 percent, of local school costs. The governor also proposed relaxing some of the revenue limits on schools and eliminating the cap on teacher salaries and benefits. Additional pressure on local property taxes will come from proposed cuts in state aid to counties and municipalities (shared revenue).
Impact on Local Property Taxes
The Legislative Fiscal Bureau, in a memo prepared for the budget-writing Joint Finance Committee, now estimates that the governor's budget will likely result in a dramatic increase in property taxes, projecting property tax levies could rise by an average of about nine percent per year. This means many property owners would see double-digit tax increases as a result. These tax increases could be even higher if the Legislature proposes additional cuts in state aids for local units of governments, including schools.
Returning to near double-digit annual property tax increases would most negatively impact young families trying to buy their first home as well as elderly homeowners on fixed incomes trying to remain in their homes. But such a tax increase would hurt all property owners, businesses and residential, and would increase the cost of doing business for all Wisconsin companies, large and small. Residential buyers and renters at all levels of the housing ladder would feel the pinch. Such additional property tax increases could return Wisconsin to the top 10 property taxing states in the nation.
Local governments however counter that cuts in state aid will mean cuts in essential local services like police and fire protection, garbage pick up, snow removal, etc. Schools argue that after a decade of revenue caps, teacher salaries, building maintenance and essential classroom costs have been starved and education is suffering.
Freeze Please
Governor Doyle has asked local governments to join the state in pledging not to raise taxes and instead respond to cuts in state aid by reducing spending and search for efficiencies. However, many lawmakers are skeptical this will happen. Some legislators are now seriously considering some form of local government spending limit or levy freeze to avoid dramatic property tax increases. One proposal, by Republican State Senator Bob Welch and others, would temporarily freeze local tax levies for a specified period of time, presumably until the state economy recovers and tax revenues stabilize. Any such proposal would allow for new development and facilitate growing local property tax bases. In addition to protecting property taxpayers, such an approach is necessary if lawmakers want to honestly pass a "no tax increase budget." Without such a mechanism, the benefits to taxpayers of a tough state budget that makes difficult spending cuts to avoid tax increases will evaporate. Without limits on property taxes, state legislators could face irate voters back home who could blame them for both cutting popular state programs or vital local services AND for raising local property taxes. But many lawmakers, particularly majority party Republicans that control both the Senate and Assembly, will be torn between their desire to protect taxpayers and their support for local control. Many legislators who oppose tax increases also oppose state mandates on local governments.
As difficult as these issues are, the WRA is urging lawmakers to seriously consider some form of limitation on local property taxes as part of the state budget.
For more information, contact Michael Theo at mtheo@wra.org.
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