CHICAGO - Although Wisconsin closed out its last fiscal year with stronger than expected tax growth, the state could face a $3 billion deficit in its next two-year budget, officials warned this week.
The warning is based on preliminary estimates that stem from a comparison of the state's most recent tax data available for September 2008 and that of September 2007. The figures show a 5% drop from the more than $1.3 billion collected last year, said state budget director David Schmiedicke.
The data reflects August activity, raising fears among state fiscal analysts that the numbers will worsen to reflect the fiscal crisis' deepening over the last month. "We are seeing the warning signs and clear evidence in the September numbers and all signs indicate that we will see a deep recession that will last through next year," Schmiedicke said.
State sales tax took a sharp hit, falling by 6% over the summer while corporate income taxes fell about 16%, compared to last year. The state expects to have a more accurate projection of the possible deficit in the next biennium, which begins July 1, 2009 when formal revenue projections and budget requests are released Nov. 20. Those numbers are used to craft a new budget.
The projections also should provide a clearer picture of the current fiscal year. The state closed out fiscal 2008 with a better-than-expected $130 million ending balance, boosted by revenue collections that increased more than 4%, higher than the expected growth level of 2%.
The stronger fiscal 2008 performance could help offset any declines in the current fiscal year, should revenues fall short of the projected 1.5% growth rate.
"It's up in the air right now," Schmiedicke said.
The official warning of the possible $3 billion deficit came from Gov. Jim Doyle earlier in the week. The governor asked state agencies to cut their budget requests by 10% in anticipation of declining revenues and said he hopes to avoid any major tax increases in the next budget, but added that all options remain on the table.
Several Republicans who control the state Assembly questioned the timing of Doyle's warning, saying they believed it was issued to help boost the Democratic contender U.S. Sen. Barack Obama in his race for the presidency against Republican Sen. John McCain. Wisconsin is considered a swing state. Doyle is a Democrat and the state Senate is controlled by Democrats.
Any cuts in the current $57 billion two-year budget would come on top of state action earlier this year to deal with a more than $600 million shortfall that had developed due to faltering revenue collections.
Doyle put off repayment of about $125 million of commercial paper and the Legislature then passed a so-called repair bill that included $270 million in cuts, the use of $57 million from the state's reserve, $150 million in up-front savings from a proposed tobacco bond restructuring, and other measures such as closing corporate tax loopholes.
Despite its struggles, the state won an upgrade from Standard & Poor's of its general obligation credit to AA in recognition of its successful navigation through its spring budget crunch with just a narrow cash balance. Fitch Ratings rates the state AA-minus and Moody's Investors Service Aa3 with a negative outlook.
