NEWS
State faces $1.6 billion shortfall
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by Ryan Masse
Monday, November 22, 2004
The state’s budget picture became clearer Friday with the release of economic figures from the state Department of Administration.
Wisconsin will face a $1.6 billion shortfall in the next fiscal biennium, half of the state’s $3.2 billion deficit from two years ago. The report credits strong economic growth and cost saving measures for the steep reduction in the deficit from the last biennium.
In the report, DOA Secretary Marc Marrota said the selling of various state-owned assets and competitive bidding on state contracts will enable the state to again cover the deficit without raising taxes.
But challenges still loom as the state grapples with the budget shortfall, including sharp growth in the costs of the state’s Medicaid program. Medicaid growth accounts for approximately $800 million of the current shortfall.
“It looks like we will be structurally balanced this year, but that is offset somewhat by the rising costs of Medicaid,” State Budget Director David Schmiedicke said, adding the $1.6 billion figure was about what he expected the shortfall to be.
Schmiedicke said the shortfall will not be easy to cover due to agency requests and advance commitments from the last budget.
The state will benefit from higher than expected tax collections, the Department of Revenue reported. The DOR projects tax collections to increase 5.6 percent for the 2005 fiscal year — $146 more than predicted by the Legislative Fiscal Bureau in January — followed by a 4.3 percent increase in revenue for the 2006 fiscal year and 4.6 gain in 2007.
DOR spokesman Jason Helgerson noted the positive figures are projections and said they could change between now and the end of the current fiscal year June 30. The Legislative Fiscal Bureau will release updated figures in January.
Although the outlook for economic growth appears solid, Helgerson cautioned the “twin deficits” of rising oil prices and the United State’s ballooning trade deficit may hinder Wisconsin’s economic recovery.
“The twin deficits are areas of concern that could lead to less General Purpose Revenue to the state,” Helgerson said. “But so far 2004 has been a good year, and if oil prices drop in 2005 as we predict, and the trade deficit begins to be reduced, the nation and the state should keep growing.”
Gov. Jim Doyle will use the figures released Friday as a starting point when crafting his 2005-7 budget in the next few months.
Sen. Scott Fitzgerald, co-chair of the legislature’s Joint Finance Committee, said in a statement the numbers prove Wisconsin’s economy is heading in the right direction. But the report “also shows that state agencies will need to be prepared to make real cuts in their budgets,” he wrote.
Anticipating a shortfall in the neighborhood of $1.5 billion, Doyle asked all state agencies to submit plans for a 10-percent budget reduction last week. Several agencies, including the University of Wisconsin System, have drawn scorn from Doyle and the legislature for not taking a realistic approach to the cuts.
Doyle is expected to deliver his budget to the Finance Committee in early 2005.
