Wisconsin’s Walker Targets $3 Billion Gap

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CHICAGO — In his inaugural state of the state address, Wisconsin Gov. Scott Walker vowed to eliminate a budget deficit of more than $3 billion in the next biennium without “short-term fixes” like borrowing. He also called on state employees to shoulder a greater share of their pension and health care costs.

Before Walker unveils a new two-year budget later this month, he plans to submit a budget repair bill to lawmakers to address a shortfall in the current budget that runs through June 30.

The Legislative Fiscal Bureau’s latest estimates on the condition of the state’s general fund projects a $121 million ending balance. But the state faces an additional $153 million in medical assistance costs, owes Minnesota $59 million under a tax reciprocity program, and must return $200 million to a medical malpractice fund as a result of adverse court rulings.

“Our budget repair bill will lay the foundation for a structurally sound budget that doesn’t rely on short-term fixes and other gap measures that only delay the pain and create perilous uncertainty,” Walker said in his address Tuesday evening.

Much of Walker’s speech was focused on dealing with the state’s economic struggles, though he provided few details of how he planned to attack the deficit. He has pledged not to raise taxes.

“Let me be clear, we have an economic and fiscal crisis in this state that demands our immediate attention. The solutions we offer must be designed to address both job creation and our budget problems,” he said.

A reliance on federal funds and other one-time revenues like borrowing for operations and dipping into various fund surpluses to aid the state’s general fund “are no longer options, and their use has only delayed and worsened the difficult decisions we must now make,” he added.

To ease the burden of funding state pensions, Walker said if employees ­contributed 5% toward their pensions and their health care premiums rose to 12% from 6%, the state would save $30 million quarterly. The state currently pays about $190 million annually for state pensions which are well-funded.

“Most workers outside of government would love a deal like that — particularly if it means saving jobs,” Walker said.

Walker did not announce any new programs but did say he planned to speed up work by two years on a massive highway interchange project, suggesting it would shave $600 million off the price tag.

Walker is a Republican and the GOP now controls the Legislature. Democrats have voiced worries about the looming impact on local governments, schools, and human services of likely cuts Walker will seek in his budget plan.

The fiscal bureau’s report released earlier this week trimmed about $200 million off previous estimates for state tax collections over the next biennium. About half of the reduction is due to tax changes pushed through the Legislature by Walker during an ongoing special session.

Income taxes, which make up 27% of general fund revenues, are expected to rise by 4.3% this fiscal year, 4.7% in fiscal 2012, and 5.3% in fiscal 2013. Sales and use taxes, which make up 18% of revenues, are expected to rise 5.2% in the current fiscal year, 4.8% in fiscal 2012, and 3.1% in fiscal 2013.

The state’s general obligation ratings were recently affirmed ahead of a $430 million GO sale. Fitch Ratings, Standard & Poor’s, and Moody’s Investors Service all rate the state’s $7.2 billion of GOs in the mid-double-A category.

Wisconsin’s credit strengths include its diverse economy, moderate debt levels, and a fully funded pension system. Its weaknesses include an ongoing structural budget imbalance, a moderately high debt burden, weak reserve levels, and the effect of the economic slowdown on revenue collections.

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