CHICAGO – As the new fiscal year approaches, Ohio and Wisconsin lawmakers are still trying to put budgets together.
Ohio is closer than Wisconsin, with differences being sorted out in conference committee. Wisconsin is expected to enter its next two-year fiscal cycle July 1 without a budget in place.
While the two-year-old impasse in nearby Illinois is driven by split party control of the legislature and governor's office, both Ohio and Wisconsin are controlled by Republicans across the board.
The need for action is more acute in Ohio. In the absence of a full budget agreement, lawmakers could pass interim budgets as they have done in the past and that would address debt service issues for the entire biennium.
In Wisconsin, where tardy budgets have been frequent, spending continues based on appropriation levels in the previous year.
“The continuing authority of existing appropriations until a new budget is adopted helps to protect against the effect of a delay in the adoption of a budget,” said Wisconsin's capital finance director, David Erdman. “If an amount has been appropriated for the second fiscal year in one biennium, there will be continuing authority in the same amount until a new biennial budget is enacted or some other legislative action is taken to amend or repeal the appropriation.”
Ohio lawmakers are working overtime to meet the Friday deadline due to disputes over how to plug the state’s projected budget shortfall of more than $1 billion.
“Our office has been working through the weekend to analyze what is in the Senate version of the bill,” said John Charlton, a spokesman for the Ohio Office of Budget and Management, and the administration expects to have a budget enacted by Friday. “We are working with the conference committee as well.”
The Senate passed its version of the budget last week after making more than 150 changes to the bill passed by the House in early May. The Senate bill would spend $65.4 billion from the state's general revenue fund and $132.7 billion from all state and federal sources over the next two fiscal years.
The Senate plan would cut more than $1 billion from the proposed budget that Gov. John Kasich unveiled at the start of the year through cuts across state agencies by an average of 3% to 4%.
It would also freeze enrollment in the state’s Medicaid expansion starting July 1, 2018. Kasich's initial budget proposal would have continued to offer expanded Medicaid coverage to more than 700,000 poor Ohioans.
Opposing Democrats said the budget offers short-sighted, short-term solutions for long-term problems. They offered an "alternative budget" amendment, which would have ended the state's small business tax break and added $1 billion annually to state coffers. They proposed using the roughly $2.2 billion raised over two years to invest in such things as college financial aid, local governments, K-12 schools, and early childhood education.
“We could have balanced the budget in a better and more equitable way, but we failed to do so today,” said Assistant Senate Minority Leader Charleta Tavares, D-Columbus.
The shortfall stems from weak revenue collections that have been revised twice since the beginning of the year. Tim Keen, Ohio’s budget director, said that the revised revenue estimates project the state will collect $949 million less than previously expected over the biennium.
The updated baseline projection for all funds Medicaid spending has increased by only $49 million, or 0.1%, from the executive forecast. But Keen said that the required state general revenue fund spending for Medicaid has increased by a larger amount, $138 million, largely based on shifts in expected caseloads between programs that receive different federal matching rates.
S&P Global Ratings noted that the state has traditionally turned to interim budget agreements when a full plan remained elusive. The interim budget would include the full appropriation needed to pay all necessary debt service and lease-rental payments related to state bonds for the first year of the biennium. The first debt service payment of the upcoming fiscal year is due on Aug. 1.
“Following the recession, three seven-day interim budgets were passed before the 2010-2011 biennium budget was passed on July 17, 2009,” S&P wrote. “The first of these interim budgets fully appropriated debt service for the entire biennium.”
Ohio is rated AA-plus by S&P and Fitch Ratings. Moody’s Investors Service rates the state Aa1.
Wisconsin Gov. Scott Walker and the legislature remain at loggerheads over how to fund the state’s transportation needs, but tardy budgets are common. The last biennial budget came late as did eight biennial budgets leading up to the fiscal 2010-2011 cycle.
“How to fund the state's transportation budget gap remains a point of disagreement, with the governor and legislature at odds over whether to raise gas taxes or registration fees, or instituting tolls,” S&P wrote in its report.
House and Senate leaders have yet to finalize an agreement on K-12 education funding but have tentatively settled differences on rural schools and the mix of additional state and property tax support that would provide extra funds. A final agreement is expected next week. Walker’s budget proposal provides an additional $650 million for schools statewide.
“In our view, Wisconsin's debt payments are well protected in the event of late budget enactment,” according to S&P.
State statutes establish, as security for the payment of all debt service on general obligations, a first charge on all revenues of the state, and a sufficient amount of those revenues is irrevocably appropriated, so that no subsequent legislative action is required to release revenues.
General fund annual appropriation obligations require appropriations in the second year of the biennium to be the greater of that year or the next year. “This requirement ensures that sufficient appropriation is made to address appropriation bond debt service in the event of a delayed budget,” Erdman said.
The state would need to address appropriation backed debt service if a budget impasse was nearing the two-year mark.
The state doesn’t expect the budget delay to impact project funding as financing for previously approved projects continues, Erdman said.
The budget is currently before the state’s Joint Finance Committee which is crafting a final version to send to the house and senate for votes.
On transportation, Speaker Robin Vos, R-Rochester, is pushing for a hike in the gas tax or higher transportation related fees to finance more spending.
Senate Majority Leader Scott Fitzgerald, R-Juneau, supports $850 million in borrowing. Walker has proposed $500 million in borrowing and delaying some projects to address a $1 billion shortfall in transportation needs. The governor is opposed to a gas tax increase.
Walker and both leaders are working on an agreement to seek federal approval to install tolling on some interstates.
Walker’s $76 billion budget offered a mix of tax cuts, more school funding although it’s tied to district’s adherence to a state law that curbs union powers, and the lowest bonding authorization in years.
The two-year plan authorizes a little more than $1 billion of borrowing, including general obligation debt of $334.8 million, $165.2 million of revenue-backed bonding, and the transportation related borrowing. The budget calls for a direct transfer of $20 million to the state’s modest reserves.
Wisconsin carries double-A ratings from all four rating agencies with Moody’s Investors Service assigning a positive outlook.