Gov. Tony Evers is calling on state agencies to cut $250 million from their budgets as state tax collections decline with the state’s economy. Already, various interest groups are making the case for why their piece of the pie should be excluded from budget cuts and the lobbyists are out in full force. The next several months are going to require real leadership.
When Governor Evers shut down the state’s economy with his original lockdown order, he also turned off the tax spigot for state government. Without people able to go to stores, restaurants, concerts, etc., the collections of sales taxes plummeted. Collection of the sales tax requires people to spend money in our economy. People were forbidden to shop, but many people also pulled back their personal spending as their own jobs and incomes were impacted. Even as the state opened, the job losses, reduced incomes, and uncertainty has depressed consumer spending and sales tax collections.
Like the federal government, the state of Wisconsin also delayed the income tax filing deadline to July 15. This had the practical effect that many people who were expecting refunds filed earlier than those who expected to pay, causing further strain on state tax flow. But the real impact on income taxes will not be felt until next year. 2019 was a bumper year for personal incomes and employment. 2020 is not.
The state sales and income taxes are the two largest sources of state tax revenue, but there are countless other taxes and fees that are being impacted by the government-imposed recession. The net result is that Governor Evers is anticipating at least a $2 billion shortfall in state tax collections over the next year. The governor’s estimate may be decidedly optimistic.
To put that in perspective, the state government planned to spend about $41 billion in this fiscal year. A $2 billion shortfall would represent about a 5% reduction. However, much of that spending goes to things like welfare, K-12 education, shared revenue for municipalities, the University of Wisconsin System, and things that are not under the direct control of state government officials.
Here is where the leadership comes in. Governor Evers has called on state agencies to cut $250 million from their budgets. As you may have noticed, $250 million is merely a down payment on the cuts that will be necessary to finish the fiscal year without a massive deficit. More cuts will be needed.
If there is one thing that any good manager knows, it is that small changes made now prevent much larger changes being necessary later. The governor has already waited too long. We knew that there would be huge budgetary implications when he locked down the state. Here we are at the end of July and he is just now asking agencies for their ideas? How long will that take for the agencies to submit their revised budgets, vet them, and implement them? Weeks? Months? The longer the governor sits around waiting to make changes, the more drastic those changes are going to have to be.
For example, the state of Wisconsin employs about 65,000 employees, including employees of the UW System, earning a median income of about $52,000. If Wisconsin implemented a 10% pay reduction for all state employees, it would save the taxpayers roughly $28 million per month. Private employers have been forced to implement such cuts and worse. In this case, it would be a 10% cut in pay and everyone keeps their jobs. Many private-sector employees, and taxpayers, fared much, much worse.
If Governor Evers had implemented a universal 10% cut in March, when he implemented his lockdown order, the state would have already saved over $112 million – almost half of what he is asking state agencies for not. That is $112 million that that will still have to be cut before the fiscal year is over, but because Governor Evers has failed to act, it will hurt a lot more.
Every day that state leaders sit around waiting for to make decisions, those decisions will be dictated to them by events. Wisconsin needs leadership. Now.
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