May/June 2007

The 2007-09 Budget Bill: Steady Progress, But a Long Way to Go

The matter of how to balance the state budget is the $64,000 question, or perhaps the $1.7 billion question. Although the Joint Finance Committee (JFC) has made quite a bit of progress on the budget bill over the last couple of months, the answer to that very difficult question still hasn't come into focus.

As this article was being finished in late May, the JFC had addressed early education and W-2 issues, K-12 education, transportation and long-term care issues, among others. However, it had yet to take up other health care issues, higher education, or corrections spending, and had tackled only a couple of the significant revenue issues.

This article summarizes the issues relating to children and families that the committee has voted on and examines the very difficult challenge of coming to an accord on how the budget will be balanced. A more comprehensive summary of the budget and the JFC changes will be posted on the WCCF website soon after the committee finishes its work.

A bipartisan DWD budget compromise

With the JFC evenly divided between Democrats and Republicans, many of the committee's votes have been 8-8 ties. Thus, it was refreshing to see the committee put together a bipartisan compromise on one of the thorniest areas of the budget it has taken up thus far - the Department of Workforce Development (DWD) budget for early education and child care. Because of a significant structural deficit in the budget for welfare reform programs, such as Wisconsin Works (W-2) and the Wisconsin Shares child care subsidy program, the Governor recommended a number of changes to reduce child care subsidy spending substantially below the 2006-07 level. Those measures included a lower income eligibility ceiling, changes in reimbursement policies for providers, higher co-pays for families, and instituting waiting lists.

On the other hand, there were also a number of positive aspects of the Governor's DWD budget recommendations. At the top of that list was a $54.8 million increase in state GPR funds for the earned income tax credit, in order to free up some of the TANF funds the state has been using for that program. The Governor also proposed several initiatives to improve the quality of early education in Wisconsin, a significant increase in state funding for child support enforcement (to partially offset federal cuts), and several very positive changes to W-2. Also, a month or so after unveiling the budget he proposed the addition of $14 million GPR to avoid the need for higher child care co-pays and to reduce the estimated size of Wisconsin Shares waiting lists.

The JFC responded to the concerns of child care providers and other early education advocates by adding significantly more funding and shifting dollars within the DWD budget. The bipartisan motion, which was opposed by just one Democrat and one Republican, eliminated almost all of the proposed cuts to Wisconsin Shares and added $70 million for the program over the next two years. Some of that funding comes from cuts made elsewhere, but the motion provides nearly $19 million more from GPR than the Governor's revised proposal.

The committee did approve two changes in Wisconsin Shares. The compromise assumes continuation of the current freeze in reimbursement rates, and it includes a change relating to reimbursement when children are absent. Although the JFC rejected the controversial absence policy recently instituted by DWD, it replaced that with an alternative policy proposed by the Wisconsin Early Learning Coalition. The alternative is intended to cut back on authorizations of child care subsidies for families whose children are frequently absent, rather than penalizing child care providers for absences.

On balance, WCCF and other early education advocates were very pleased with the JFC motion, even though eliminating the Wisconsin Shares changes resulted in cuts to many of the Governor's other proposals that advocates supported. Some of those cuts include:

  • elimination of the Quality Rating System for child care providers;
  • a much smaller increase than the Governor had proposed for the TEACH/REWARD scholarship and stipend program; and
  • a total reduction of $3.4 million for child care quality programs, relative to the amount recommended by the Governor.

Filling the gap in Wisconsin Shares funding also resulted in cuts to several positive W-2 initiatives the Governor had proposed, including:

  • elimination of proposed W-2 benefits for unmarried pregnant women who are in their third trimester and unable to work because of a high-risk pregnancy;
  • a smaller increase in funding for emergency assistance;
  • elimination of the proposed expansion of eligibility for caretaker of a newborn infant grants for new moms; and
  • a significant reduction in the size of the proposed Real Work, Real Pay demonstration project (which will have 100 slots instead of 500).

The committee also approved a larger cut in funding for W-2 benefits, based on the assumption that there would be a continued decline in the already very low cash benefit caseload. However, the JFC was able to maintain current TANF funding levels for child welfare prevention services, the Children First program, and the Boys & Girls Clubs of America. A new element included in the committee's compromise authorizes counties to investigate fraud in the W-2 and WI Shares programs.

Far less unity on K-12 education

In contrast to the bipartisan agreement reached on the DWD budget, the JFC was sharply divided on many of the K-12 education issues. However, committee members did not debate the biggest part of the DPI budget - the $235 million increase for general school aids. The debate focused instead on revenue limits, categorical aids and school choice. According to the Legislative Fiscal Bureau (LFB), the aid levels in the Governor's budget, coupled with several small adjustments easing the revenue caps, would result in a state share of 65.0 percent of school spending in 2007-08 and 64.9 percent the next year, compared to 66.1 percent in 2006-07. A motion offered by Rep. Rhoades would have maintained the same level of general school aid, while reducing the current caps on revenue growth to $100 per pupil per year. That would have cut school property taxes by $290 million over the next two years, which would have raised the state share of spending to 66.2 percent in 2008-09. The motion failed on a vote of 6 to 10, but it may be a proposal that reemerges in the Assembly version of the budget.

There was a sharper divide in the committee on proposed increases in categorical aid programs. A Republican motion, which failed on a vote of 8-8, would have eliminated $25.75 million of categorical aid increases recommended by the Governor. The unsuccessful motion would have produced a net reduction of $10.75 million, relative to the Governor's proposal, while shifting $15 million into three other categorical aid programs: transportation aid increases for rural districts, a pay-for-performance pilot program for teachers, and aid for school safety expenditures.

Because that motion failed, the following increases remain in the JFC's version of the bill:

  • $15 million for grants to Milwaukee Public Schools to improve pupil achievement;
  • $3 million in 2008-09 for grants to help school districts implement four-year-old kindergarten programs;
  • about $3.3 million to increase reimbursement for school breakfast programs (which might help lift Wisconsin out of last place in the percentage of students receiving school breakfasts);
  • $540,000 to expand the SAGE program; and
  • $500,000 in 2008-09 for a new appropriation for grants to school districts for language instruction in the elementary grades.

Some of the other significant education issues include the following:

  • Special education aid - The committee did not debate or vote on the Governor's proposal to increase special education aid by $53.6 million over the next two years, which means that increase remains in the bill.
  • SAGE - After much debate and several tie votes, no significant changes were made to the Governor's proposal to increase SAGE funding by $10.4 million per year. That increase was intended to boost the per pupil payment from $2,000 per low-income pupil to $2,250, as approved in 2005 Act 125; however, the Fiscal Bureau projects that the increased funding level will result in prorated payments of just $1,980 per student. A motion offered by Democrats to provide a larger increase for SAGE was defeated on another 8-8 vote.
  • School choice - The committee also split on a couple of motions relating to the parental school choice program. As a result, the Governor's recommendations remain intact, including an increase of $21 million for Milwaukee Public Schools to raise the state's share of costs for the program from 55% to 100% for costs of exceeding enrollment of 15,000 pupils.

New kids agency survives

The JFC voted 11-5 for a slightly amended version of the Governor's proposal to create a new Department of Children and Families. The new department would integrate key early childhood functions that have a child care emphasis, including the Wisconsin Shares child care subsidy program, licensing and certification, quality improvement efforts, and home visitation programs. It would also include W-2, other TANF related programs, child support, child welfare, child abuse and neglect prevention, the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and food distribution and hunger prevention programs. The modifications made by the committee include: specifying the purpose of the department clarifying that the merger does not alter the missions of W-2 and child welfare services, and providing that the legislature's Strengthening Families Committee would have an advisory role in the implementation of the new agency.

The vote on the amended version of the proposal came after a tie vote on a motion that would have eliminated the new agency from the budget. The changes mitigate some of the concerns raised by opponents of the measure, but it appears that there may still be strong opposition in the Assembly, particularly to moving W-2 out of DWD. Creation of the new department is likely to be an issue that is ultimately resolved in the conference committee that settles the differences between the two houses.

Preliminary action on health care

The major health care decisions, including the Governor's initiatives to significantly expand access to health insurance, had not been made when this article was written. However, the JFC had addressed a few health care issues, including the following:

  • Family Care expansion - The JFC approved by a 15-1 vote Governor Doyle's proposed expansion of Family Care, with a number of modifications. The changes include retaining legislative oversight of expansion, requiring consent by a county to participate in Family Care, decreasing the county share of costs, and providing ombudsman advocacy services for participants under the age of 60. The committee's motion also increases the funding available for the children's long-term support program.
  • Citizenship and identity documentation requirements - The committee approved the Governor's proposal to increase spending for Medicaid administration by $754,000 per year to fund the increased costs resulting from the federal citizenship and identity documentation requirements for Medicaid applicants and enrollees.
  • Community health centers - By a vote of 14-2, the JFC approved a motion by Senator Decker and Rep. Suder to provide an additional $3 million for grants to community health centers, beginning in fiscal year 2008-09.
  • Reducing infant mortality - There was also bipartisan support for a motion offered by Senator John Lehman to provide $500,000 GPR over the biennium to fund a program to reduce fetal and infant mortality in the City of Racine.

Tax and revenue issues

The Governor's budget includes about $1.7 billion in new taxes and fees, and most of that funding simply helps fill the structural deficit and pay for existing programs. However, a number of prominent Republican legislators have vowed not to support any of the Governor's tax increases, and it is unclear how the budget will be balanced if those proposals are rejected. As of June 1, the JFC had taken up just two of the more significant revenue increases and both were kept in the bill after efforts to eliminate them were rejected on party-line 8-8 votes. Those two measures are:

  • Oil company tax - The committee could not agree on any changes to the Governor's proposal for a 2.5 percent tax on the gross receipts from motor fuel suppliers' sales in Wisconsin. It would generate about $270 million in new revenue over the next two years, which would be allocated to the Transportation Fund. However, because some of that revenue would be used to free up GPR funds to spend on transportation programs outside the DOT budget, rejection of the oil company tax would create significant fiscal challenges for the rest of the budget.
  • Real estate transfer fees - The Governor's budget raises about $142 million over the next two years by increasing the real estate transfer fee by 3 mills (0.3 percent) and allocates the proceeds from that fee to a new County Aid Fund. A portion of that fund would be used to pay for several funding increases for counties (Shared Revenue, Youth Aids and Circuit Courts) and for a housing trust fund.

Several other controversial revenue sources were coming up later: the proposed $175 million transfer from the patients compensation fund, the proposed hospital assessment, and the increase of $1.25 per pack in the cigarette tax. Rejection of any one of those would put a substantial hole in state financing for Medicaid and related health care programs. By June 1, the committee had taken up two Doyle proposals relating to property tax credits - indexing the Homestead Tax Credit and creation of the so-called "First Dollar" credit:

  • Homestead Tax Credit - This credit provides well-targeted property tax relief to low-income households. One problem with the credit, however, is that it is one of the only significant parts of the tax code that is not indexed for inflation. The Governor proposed indexing the credit, but the prospects for that long-overdue reform dimmed when the Fiscal Bureau estimated that the net cost would be about $10 million higher than had been included in the bill. On an 8-8 vote, the JFC failed to approve a Republican motion that would have cut the cost by only adjusting the credit for seniors. The committee then voted 10-6 for a motion that provided the full funding for indexing the credit.
  • First dollar credit - The committee also approved the Governor's proposal to increase the school levy tax credit by $100 million beginning in 2010, with the increase used for a "first dollar credit." It would essentially exempt from property taxes the first $6,000 (approximately) in property value, which is a more progressive way of distributing the levy credit.

Conclusion

After months of budget hearings and deliberations in the JFC, it still isn't clear how the Legislature will ultimately balance the budget. There is a sharp partisan divide on many of the Governor's revenue proposals, yet spending in the bill appeared (as of the end of May) to be on track to equal or surpass the level recommended by the Governor. Many substantial spending items in the bill - including general school aids, the child care subsidy program and Family Care - have enjoyed broad, bipartisan support in the JFC. There have been many other areas where Republicans offered motions to cut spending that failed on 8-8 votes, and we can probably expect to see those proposals again in the Assembly. But thus far, the proposed cuts fall far short of providing a blueprint for how the budget might be balanced without substantial new revenue, such as the sources the Governor has recommended.

The sharp divisions on revenue issues make it very difficult to see how the Senate and Assembly will agree on a budget. In fact, it is hard to foresee how either house will pass its own version of a balanced budget. Because the Senate will take up the bill first, the Assembly could possibly decide to take the easy way out and simply vote against the Senate version, without voting on an alternative, and then send the bill to a conference committee. That approach is likely to be the easiest way to find 50 votes in the Assembly, and it would keep the commitment of legislators who have pledged not to raise taxes. On the other hand, by not offering and voting on an alternative to the budget that emerges from the Senate, the Assembly would be in a somewhat weaker bargaining position in the conference committee.

Predicting how the rest of the budget process will unfold is nearly impossible, but one prediction seems to be a pretty safe bet: Don't expect the budget to be finished any time soon.