The UW System could see a shift in the source of its state funds, along with a $300 million budget cut over the next two years, if Gov. Scott Walker’s budget proposal is approved.
Currently, the system’s state grants come from the government’s General Fund, which accumulates primarily from state income taxes, but a line in Walker’s proposal last week suggested “earmarking” a portion of the sales tax to fund the UW System. The details of the shift are still unclear, but the effect could be substantial, John Witte, a professor of political science at University of Wisconsin, said.
“It would be a dramatic change,” Witte said.
Andrew Reschovsky, a professor of public affairs at UW, said while the mechanics of the change have not yet been released, he expects the government would earmark a portion of the sales tax to be used only for higher education.
Like the gas tax, which is earmarked for highway construction, Reschovsky said Walker would most likely set up a fund that funneled a percentage of the total sales tax to fund the UW System.
“Finance economists tend not to like earmark taxes, primarily because when they are instituted they may look like a particular set of priorities, but states’ priorities change over time,” Reschovsky said.
Reschovsky said once a tax is earmarked, it is politically difficult to change. He said years from now, if the state decides it needs that money elsewhere, lawmakers could run into trouble.
This kind of tax tends to look good in the short run, but might not be beneficial long term, Reschovsky said.
“It reduces flexibility for future legislators,” Reschovsky said. “They could change the law but I think it’s politically hard to change.”
Noel Radomski, director and associate researcher for Wisconsin Center of the Advancement of Postsecondary Education, said a shift in state revenue to the UW System from the General Fund to primarily sales would make it difficult for the university to engage in long-term planning.
Radomski said sales taxes tend to be more volatile than other types of taxes and if the state faces a recession the system would be greatly affected.
“Quite frankly that does not allow campuses to do long-term planning, because you never know what’s going to effect the sales tax revenue,” Radomski said.
Reschovsky said exactly how this change would effect the system would be dependent on details which will be released Feb. 3 when the budget proposal is finalized.
Having a fixed portion of state revenue going to the UW System would actually make it easier for campuses to long-term plan, Reschovsky said, but if there were to be a recession and revenue were to fall, that could lead to bigger cuts to the system.
“Going to an earmarked revenue source for higher education is certainly not typical,” Reschovsky said.
Witte said, politically, a shift this dramatic would be hard.
He said the way he read the line was as a proposal to increase the sales tax and reduce income tax. The real meaning of such a shift, however, would lie in the details, Witte said.