By GENE KEMMETER
of The Gazette
Wisconsin's fiscal crisis is greater than what many members of the public believe, and will require some unpopular action, the former secretary of Health and Family Services in Wisconsin told the Portage County Business Council Tuesday, Dec. 10.
Joseph Leann, a former state senator from Waupaca, told council members at a "Morning News" event "I bring you sad tidings of great concern, one you've heard a lot about."
However, he said, the public and many legislators have failed to grasp the enormity of the crisis, particularly after a stop-gap effort earlier this year only exasperated the situation, solving nothing.
The state faces a structural deficit of $1.6 billion to $2.8 billion in the next year with its current budget, he said, which is roughly 20 percent of the budget. A structural deficit, he explained, means the state has committed more to expenditures than is available in revenues.
Other states face similar problems with a deficit, he said, but Wisconsin is probably worse than other states because its budget is smaller, with $10 billion in the general budget.
Cutting the budget isn't simple, he said, because for every dollar cut another dollar may be lost in other funding sources, cutting back revenues.
Because of the roaring 1990s bull market, all state governments were bringing in surpluses, Leann said, and "were all spending like drunken sailors." The federal government started showing a surplus and predicted that they would have them for 15 to 20 years, he said.
State government built their budgets on revenue projections, and once a budget was adopted, revenue projections indicated more money to spend so legislatures sent back rebates and added new programs, he said, adding, "the state blew $800 million out the door in 2000 in rebates and low taxes."
States had the opportunity to build a rainy day fund, he said, but instead "they built new programs and sent back lots of money."
Then the economy started to slow and along came 9/11, which really impacted the economy with dwindling revenues.
Instead of cutting programs to address the budget problem, Leann said legislators took the state's tobacco money and secured bonds to backfill the budget, really making the problem worse because there are no more tobacco funds to spend.
As a member of a task force asked to propose solutions for the crisis at the annual University of Wisconsin Economic Summit, Leann said the group offered a comprehensive tax plan that is controversial.
The group looked at the budget, but felt cuts alone wouldn't solve the problem.
More than 40 percent of the state budget goes for elementary and secondary school aids, and putting the money back on the property taxes would only shift the funding problem, he said.
The medical assistance budget is $1.024 billion and reductions affect people in nursing homes, people with disabilities and low-income residents, plus those reductions would cost the state federal money on a one-to-one basis, he said.
The UW System has a $1 billion budget, but it's a system that makes Wisconsin proud and educates the workforce, he said, so cutting it would hurt the state in the long run.
Other areas of the budget also have little room for reduction, he said, pointing to corrections, the judicial system, public assistance and technical colleges.
The group's comprehensive tax plan calls for simplifying the Wisconsin tax code and forms, lowering income tax rates, expanding sales tax and user fees, raising new revenues to solve the budget crisis, restoring fiscal sanity and the state's bond rating and rehabilitating Wisconsin's high tax rate reputation.
Instead of having its own tax system, Leann said the state should use federal forms and then lower income taxes.
Expanding the sales tax would raise about $776 million for each cent, while leaving food and medicine such as prescription drugs exempt, he said. Expanding the sales tax to cover service items will be controversial, he said, because some groups want to protect their territory. That added revenue would offset the income tax reduction, he said.
In conjunction with the plan, Leann said the state would also have to impose some spending changes, such as cutting $300 million per year in aid to schools by lowering the commitment from two-thirds funding to 62 percent.
One problem in Wisconsin, he said, is the state has 435 school districts, which he feels should be consolidated to save on administrative services to eliminate administrators. "We need to concentrate to get more money into classrooms."
Another cut would be about $50 million in shared revenues to counties, he said, because they can replace those funds by raising sales taxes in the county.
The plan would shift the state from a high-income-tax state to a user-tax state, he said, and the group doesn't believe the problem can be solved with a short-term fix.
The easiest way to fix the problem, he said, would be a surcharge on the income tax and that's what he fears the state Legislature will do.
"They can't just cut a billion out of spending and solve the budget problem," he said. "The problem is they've all promised no new taxes and this no-tax pledge bothers me some.
"I hope that come January they will say this problem is so severe they have to make some drastic changes. I think Wisconsin residents will support some heavy cutting and changes."
The group's report is on Internet at www.wisconsin.edu/summit/papers/index.htm.