The decrease in state tax collection may dramatically affect the state’s two-year budget by as much as $200 million per month.
The two-year state budget plan signed by Gov. Scott McCallum in August may have overestimated the amount of money that would come in from state taxes. A shortage in the state’s budget for the year, an estimated $570 million in new tax collections this year and an additional $460 million next year, could mean cuts in state spending.
McCallum has already announced plans for a state hiring freeze and said all spending programs will need to be evaluated to find extra money.
David Schmiedicke, state budget director, said the budget proposal that passed in August was affected by the Sept. 11 terrorist attacks.
“Obviously there were significant unseen events that have affected the actual tax collections, but the actual numbers are not known right now,” Schmiedicke said.
State budget estimations for the year took into account the economic slowdown in the manufacturing sector, and although there were early signs of rebound in August, the terrorist attacks had an effect on the economy, Schmiedicke said.
“Sept. 11 threw it all in the air and we are in uncharted territory,” Schmiedicke said. “We will have to wait and see the actual numbers.”
Although the state budget is not always what is projected, as shown throughout the 90s when there was a massive economic expansion, Wisconsin underestimated the amount of money the state would receive in taxes. Money from sales, income and corporate income taxes are included in the over-estimation.
“We have built the budget on the spending plan for the next two years, and I think that there are some deep concerns about the budget,” Schmiedicke said.
“There are some measures that have to be put in the plan.”
Although data on statewide tax collection is available monthly, Schmiedicke said because of the way data is taken, it is impossible to determine the effect on taxes collected until at least November or December.
“Basically, we just don’t know where the economy is going,” Schmiedicke said.
“Our data is lagging and we don’t know how Sept. 11 affected the economy. But it looks like things are not going too well. We are really watching closely.”
UW-Madison professor of economics Richard Green said the tax collection shortfall could have a couple of different effects on the economy.
“Because there isn’t enough to cover the balance, the state can either raise taxes or cut spending on some state programs,” Green said. “But because Wisconsin is already a high tax state and increasing raising taxes would make the state less competitive, that probably won’t happen.”
Green said it is more likely that there would be a cut on public service spending at the state level. The cuts could come from anywhere in the budget from the licensing department to a freeze in hiring new nurses at state hospitals.
