Embattled Gov. Walker Touts Fiscal Gains in Wisconsin

CHICAGO — With the prospect of a recall election ahead of him, Wisconsin Gov. Scott Walker sought to highlight the state’s improved fiscal condition after a tumultuous first year in office.

“When I spoke here last January, Wisconsin faced a $3.6 billion deficit,” Walker said in his address. “We balanced the state budget. We balanced it without raising taxes, without massive layoffs, and without budget tricks. We balanced … the budget deficit with long-term, structural reforms.”

Walker and his fellow Republicans, who hold a majority in the state Legislature, relied mostly on spending cuts to eliminate the deficit in the biennium that began July 1. Former leaders often relied on one-time revenues to balance the books, leaving an imbalance between the state’s ongoing costs and its recurring revenues.

The plan did rely on one significant non-recurring revenue source, a $337 million restructuring in fiscal 2012, but generally rating agencies said the $66 billion budget improved the state’s credit position. The budget puts Wisconsin on course to reduce its $2.5 billion structural imbalance to $250 million and end the biennium with a cash balance of nearly $300 million.

All three major credit rating agencies assign double-A ratings to the state’s $6.2 billion of general obligation bonds.

The shift towards a more solid financial footing came at the expense of local governments, school districts and public employees, who face higher pension contributions and health care premiums. Walker also pushed through measures that sharply curtailed public workers’ collective bargaining rights, the main impetus for Democrats and unions to launch a recall drive against the governor.

Walker’s budget did not include any general tax hikes and it strictly limited local property tax increases to keep governments from raising taxes to compensate for state cuts, a measure Walker touted in his speech this week.

“For the five years prior to last year, the average school-tax levy increased $220 million per year. Our reforms led to the first decrease in the school property-tax levy in six years. The total school tax levy actually went down by more than $47 million,” Walker said.

Democrats voted against the budget over concerns that it hurts local governments and schools while aiding businesses that received various breaks. They also blasted Walker’s portrayal of the budget in his speech as moving the state forward and attacked his contention that the state had turned the corner on job losses.

“He is living in a state of denial,” Senate Minority Leader Mark Miller said in a statement. Six straight months of job loss; tax increases on seniors and working families by cutting the Homestead Tax Credit and the Earned Income Tax Credit programs… $2.36 billion worth of tax credits to big corporations and special interests at the expense of investments in education, health care and jobs.”

Earlier this month, organizers of the recall efforts submitted more than one million signatures, double the number needed. Officials are reviewing the petitions.

Fitch Ratings said in a special commentary this week that no rating effects were expected in the near term as a result of the looming recall election. Should Walker lose, Fitch said it would “assess the impact of any shift on the state’s fiscal and debt profile, particularly whether such changes affect the state’s commitment to structural balance going forward.”

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