The 1995‑97 state budget proposed by Governor Tommy G. Thompson (R) is massive. It is 2,509 pages long; the legislative summary runs 115 pages. From all funding sources, it spends $30.1 billion, while offering what Governor Thompson terms "the largest tax cut in state history." It charges state government with primary responsibility for funding public schools; it promises to reinvent welfare and redefine public education. It is arguably the most significant state budget in decades. 

1995‑97 BUDGET OVERVIEW 

The "Billion‑Dollar" Challenge 

Legislated Crisis. In preparing his budget for the next 2 years, Governor Thompson faced a major financial challenge of unusual origin. It was a crisis due not to a recessionary drop in tax collections or a surge in state spending; it was created by professional partisans mindful of public anxiety over high property taxes and motivated by election‑year one‑upmanship. The result was a compromise between assembly Democrats and senate Republicans that froze school levies statewide for 2 years, and committed the state to providing two‑thirds of school funds in 1996‑97. 

The Governor Responds. In April, Governor Thompson signed the package and then added his own election‑year wrinkle, a pledge to fund the biitiun‑11uilar school tax "buy down" without raising state taxes. His February budget message explained why: Governor Thompson saw this as a "one‑billion opportunity . . . to completely reshape and redefine state government." 

As the table on the next page shows, the 1995‑97 budget would increase state general purpose revenue (GPR) spending 16.196 from $7.83 billion in 1994‑95 to $9.09 billion in 1996‑97. School funding and corrections are largely responsible for the increase. The governor proposes adding 1,380 GPR employees to the Wisconsin Department of Corrections and providing $1.2 billion in new school property tax relief‑$252 million in 1995‑96 and $959 million in 1996‑97. Net property tax levies statewide are expected to drop from December 1995 to December 1996 by 9.596, or more than $200 for a median‑valued home. 

Key elements of the Thompson plan to fund the school tax buy‑down include: use of more than $230 million in carryover funds from 1994‑95 ("opening balance"); rising net tax collections of $382.9 million in 1995‑96 and an additional $464.3 million in 1996‑97; increased departmental revenues and $72 million in higher user fees; spending freezes and cuts; and deferral of $150 million in school levy credit funding to the next biennium. 

*Adapted from "Your Wisconsin Government," numbers 5, 6, 7 and 11, 1995.

Goals Accomplished? 

The governor stated his desire to reduce state spending and provide lasting property tax relief without increasing taxes or delaying the tax relief beyond this biennium. 

Spending Cuts. While annual state GPR spending growth averaged 5.696 during the first 7 completed years of the Thompson administration, stet appropriations excluding school funding and corrections will rise 2.696 to $4.84 billion in 199596‑mainly to fund prior statutory commitments‑and drop 3.596 to $4.67 billion in 1996‑97. By mid‑1997, this set of appropriations is expected to be 1.096 lower than this year. With all GPR spending for 1995‑97‑prisons and schools included‑up 16.196, the magnitude of budget cuts in other areas is clear. 

Tax Increases The governor proposes $88.1 million in tax hikes and $28.4 million in cuts for a stet biennial increase of $59.7 million (see table on next page). Most of the tax changes take effect in 1996‑97, with the bulk of stew revenue coming from reducing. the school property tax/rent credit from 1096 to 6.8796 of the first $2,000 property taxes ($62.0 million) and repealing the sales tax exemption for telephone companies purchasing central office equipment ($17.5 million). The tax package also reduces the top marginal income tax rate from 6.9396 to 6.87%, which applies to joint filers with taxable incomes over $20,000 (single filers over $15,000) and trims tax revenues by $25.5 million. 

The net effect of the 2 income tax changes increases individual income tax payments by $36.5 million, or an average of $16 per tax filer. Democrats charge these 2 increases adversely impact those with taxable incomes under $100,000, while cutting taxes above this level. Republicans argue that this is outweighed by substantial property tax cuts and remind Democrats of their past attempts to reduce the property tax credit. 

Lasting Properly Tax Relief

Last October, the Wisconsin Taxpayers Alliance forecast net property taxes through 2003‑04 and found that levies would drop in 1996‑97 but resume their growth thereafter, fueled principally by counties, technical colleges and municipalities that don't fate the same revenue caps as schools. The counties and colleges are under tax rate limitations; some municipalities receive expenditure restraint payments designed to check spending. increases. But the effect of these spending controls can be questioned: In December 1994, school levies rose 0.396, while county levies increased 5.7%; technical college levies, 7.296; and municipalities, 6.0%. 

REORGANIZING GOVERNMENT 

Central to the 1995‑97 state budget is Governor Thompson's proposed reorganization of state government. In his words, he seeks "a new government for a new century." More than 30 agencies and thousands of state jobs are affected. Thompson also revives an old debate over "cabinet government" by asking for authority to select 3 additional department secretaries. 

What Goes Around . . . 

The Fifties and Sixties. Since World War II, virtually every governor has sought greater appointive authority. In 1951, Walter Kohler (R) lamented the "autonomous" nature of many agencies. In 1961, Gaylord Nelson (D) proposed a constitutional amendment that "would permit the governor to initiate changes in the organization of the administrative branch, subject to legislative veto." In 1965, Warren Knowles (R) named the Kellett Committee whose recommendations led to a major reorganization of state government in 1967 that reduced the number of agencies from 105 to 28 and gave cabinet status to some. 

In 1969, Knowles asked Bill Kellett to head an education commission. This second Kellett panel suggested replacing the, elected state superintendent of public instruction with an elected State Education Board, which would appoint an executive director and oversee all aspects of Wisconsin education, including higher education. The Department of Public Instruction (DPI) was to staff the board and director. 

The Seventies. In the early 1970's, Patrick Lucey (D) merged the state's universities into a single system and urged expanded cabinet government for Wisconsin. He wanted to appoint the secretaries of‑. Health and Social Services (DHSS); Industry, Labor and Human Relations (DILHR); Regulation and Licensing; Veterans Affairs; Agriculture (DATCP); and Natural Resources (DNR). He was rebuffed on the last 3, with appointive authority left in the hands of citizen boards named by the governor. In 1979, Lee Dreyfus (R), without success, renewed the call for cabinet status for these departments. 

SAVE, 1995. Last month, the SAVE (Study of Administrative Value and Efficiency) Commission recommended: a new Department of Education, headed by a cabinet secretary jointly appointed by a citizen board of education and the governor; elimination of the elective posts of secretary of state, state treasurer and superintendent of public instruction; cabinet status for DNR, Agriculture and Veterans Affairs; creation of a new Parks and Tourism Department; and a "sweeping sunset process" for advisory boards and councils. 

Enter Thompson 

        Governor Thompson included most of the SAVE recommendations in his 1995-97 biennial budget and added his own reorganization ideas. The governor's proposals include: granting cabinet status to DNR and Agriculture; moving welfare and job training programs in DHSS to a renamed and enlarged Department of Industry, Labor and Jobs Development (formerly, DILHR); shifting juvenile corrections from DHSS to the Department of Corrections, leaving a scaled‑back and renamed Department of Health and Family Services; moving to the Department of Development (DOD) new functions such as safety and buildings (from DU .HR) and international agribusiness (from Agriculture) to create a new and enlarged Department of Commerce; removing parks from DNR and tourism from DOD to create a new Department of Tourism and Parks; and creating a University of Wisconsin Hospitals and Clinics Authority, governed by an independent board. 

Additional changes include: creating a Department of Financial Institutions from the existing commissioner's offices serving banking, savings and loans, securities and credit unions (attached for administrative purposes), while adding programs from the Secretary of State's office and the Department of Regulation and Licensing; eliminating the State Treasurer's office but attaching the elected position to the Department of Administration (DOA); reducing the size of the Secretary of State's office by moving many of the functions to the Departments of Revenue and Financial Institutions; shifting consumer protection from Justice to Agriculture; and merging 3 existing commissions‑ Personnel, Employment Relations and Labor and Industry Review‑into a Wisconsin Employment Commission. 

Many smaller agencies, boards or functions would be merged (such as the Judicial Council and Commission), folded into larger agencies (e.g., the Educational Communications Board to DOA) or ended. The Commissioner of Railroads, the Educational Approval Board, the Higher Educational Aids Board, the 2 public intervenors. the Council on Recycling, the Radioactive Waste Review Board and related councils, the Cost Containment Commission and Council, the Sentencing Commission and the Privacy Council would all be eliminated. In addition, over 180 other boards and councils would be scheduled for "sunset" on July 1, 1996. 

"Lightning Rod" 

A handful of the proposals to "reinvent" government will spark most of the debate. These include: 

Privatizing Gaming Commission Functions. The governor proposes contractors provide commission security and handle lottery data processing, ticket delivery and telephone sales. He argues they can perform these functions "more efficiently and more economically" than state government. State Representatives Mary Lazich (R), New Berlin, and Rebecca Young (D), Madison, worry this is "likely to subject the lottery to corrupt influences." 

In addition, the state provides $319.3 million in school levy credits and $153.3 million in lottery credits (to owners of principal residences), both of which are subtracted from the tax bill. 

Equalizing" Tax Base. At the heart of the state's school aid philosophy since 1949 is the concept of "tax base equalization." This recognizes that wealthier school districts, because they have higher property values, can raise more money at lower tax rates than "property‑poor" districts. Consequently, most of the 1994‑95 general state aid‑ $1.99 billion, or 95.1 %‑is paid as "equalizing" aid: The more property wealth a school district has, the less aid it receives. Categorical aid does not depend on a district's property values, but subsidizes the cost of special programs, such as handicapped education ($275.5 million), pupil transportation ($17.7 million) and libraries ($16.0 million). 

Printout Politics 

Although most state legislators are committed to finding $1.2 billion during 1995‑97 to "buy down" school property taxes, consensus stops there. Two opposing philosophies, which have more to do with geography than partisan loyalties, are sure to clash. One group, promoting the interest of "property‑poor" school districts; will argue for tax‑base equity. This group will advocate paying aids through the equalization formula, rather than through categorical aids or school levy credits. 

An opposing viewpoint, more likely to include legislators from "property‑rich" districts, will argue for tax‑relief equity. This group will say that if increased state funding of local schools is going to be paid for with state income and sales tax collections, then fairness demands that all parts of the state should share in the tax relief. 

With Republicans holding slim majorities in both the assembly and senate, the governor and GOP legislative leaders may have to pass a state budget exclusively with Republican votes. Crafting a tax relief plan that can appeal to all Republican legislators, some of whom represent property‑rich resort and suburban communities while others come from disadvantaged rural areas, presents a political problem. The final solution will be one that can attract 17 votes in the senate and 50 in the assembly. It will have a lot to do with printouts and politics‑and less to do with textbook public policy. 

The Governor's Proposal 

Goals. Governor Thompson wanted the state to provide two‑thirds of local school revenues in 1996‑97, while providing tax relief to all school districts. If the combination of school aids and the school levy credit paid in 1993‑94 is compared with the governor's tax relief plan had it been in place in 1994‑95, virtually every school district's net levy would drop, usually by 20 % to 50 % (see graph on the next page). 

The governor did not emphasize narrowing tax‑base differences between property‑rich and ‑poor districts or directly recognize the possible added costs of educating low‑income and handicapped children. Nor did he choose to rework the "equalization" aid formula, which spending critics see as "cost‑driven," to remove incentives that encourage some school districts to spend more; instead, he asked for tighter and permanent "revenue caps" on school districts. 

Elements. Governor Thompson proposes adding $252 million in 1995‑96 to the existing school aid formula to freeze statewide school levies for a third year. For 1996‑97, he suggests increasing the school levy credit from $319 million to $469 million and adding $809 million to the general school aid formula. The former is distributed to all taxpayers based on a school district's share of statewide school levies; the latter is tied to a district's property wealth. The governor also proposes changing the school aid formula. Currently, "property‑rich" districts do not qualify for "equalizing aid," but receive a flat per‑pupil payment between $175 and $400. Thompson suggests scrapping these "minimum aids" and modifying the general aid formula so all school districts in the state qualify for aid on the first $1,000 per pupil they spend. Most, if not all, "minimum aid" districts will fare better under the governor's plan. 

Impact. The table on the next page shows how the governor proposes distributing property tax relief. For ease of analysis, it focuses on the 369 K‑12 school districts by grouping them by per‑pupil property value. For example, the bottom 20% of school districts had 1994 per‑pupil valuations between $75,600 and $125,400 (col. 2) and represented 8.9% of 1994 public school enrollment (Col. 3). These 74 districts received $279.2 million, or 16.3%, of 1993‑94 school aids and levy credits (cols. 4 and 5) and $305.5 million, or 15.7%, of 1994‑95 aids and levy credits actually paid (cols. 6 and 7). Under the governor's proposal‑had it been in effect in 1994‑95‑relief to these districts would have risen 28.7 % (col. 10), or $80.2 million (cot. 11), to $359.4 million (col. 8). The $80.2‑million increase represents 8.4% (col. 12) of the total $961.0 million in increased aids and credits. 

Analysis. Generalizations based on these data are exactly that. However, the impact of the governor's plan can be summarized as follows: property tax reductions for all school districts in the state; continuation of past efforts to pay a disproportionate share of total relief to property‑poor districts (col. 9); and direction of a larger share of the growth in proposed tax relief to districts with above‑average per‑pupil property values (col. 12). Increases in the school levy credit and the new school aid payment on the first $1,000 of per‑pupil spending partially explain these conclusions. Adding money to the equalizing formula also tends to benefit disproportionately property‑wealthy districts now receiving little aid, in part because the poorest districts already receive significant state support. 

LOOKING AHEAD: THE 1997‑99 CHALLENGE 

The decision to make the state the primary source of revenue for public education and do so without major state tax increases‑drives every decision the legislature must soon make. It casts a large shadow over future state budgets, as well. 

The Makings of a Problem 

1995‑97. The impact of the new school property tax relief effort can best be seen in 1996‑97, the second year of the upcoming biennium. As the table on the left-hand side of the next page shows, the state will need all of an accumulated $400million surplus and $8,779 million in revenues to cover its $1,200‑million school funding commitment. The state will spend $9,088 million in 1996‑97 and end the year with a balance of $453,000. 

1997‑99. As things now stand, Wisconsin would begin the 1997‑99 budget period with a $459‑million revenue "gap" (see table on the right‑hand side of the next page). This results from 2 actions proposed in the 1995‑97 budget. First, $9,088 million would be spent in 1996‑97, but only $8,779 million would be collected; this leaves a $309‑million revenue shortfall. 

Second, the governor suggests that the final $150 million to be counted toward state funding of two‑thirds of local school costs be distributed as property tax credits that don't have to be paid until 1997‑98; this would delay $150 million in state obligations for one year, moving them out of the 1995‑97 biennium. The 1997‑99 budget will be further complicated by the need to find about $200 million per year in new school funding. 

This means Wisconsin will have to find between $850 million and $900 million in 1997‑99 to address the $459‑million revenue shortfall and honor its "two‑thirds" school‑funding pledge. 

If the 1995‑97 budget is difficult, the 1997‑99 budget may be equally or more so, especially if state tax collections slow.