INTRODUCTION

One notable development throughout the 20th Century has been the increase in government activism, by far most evident in a greatly‑expanded central government. Toward century's end, however, the tendency of federal and state governments to address their budget problems by reducing transfers to lower levels is a clear countertrend. From the Reagan administration on, the central government has advocated and effected devolution, reducing the federal government's role in funding programs, regulating, and administering. Most recent and illustrative is the termination of Aid to Families With Dependent Children as a federal entitlement and devolution of this responsibility to the states. 

In the 1970s and 1980s public education topped the agendas of the nation's governors. In the 1970s they aimed at equal education opportunity through equalization of state aid. In the 1980s they turned to 'accountability," and economic development became their top priority. Welfare has also been of great interest to governors. In the 70s they perceived the problem to be how states would match and thus qualify for liberalized federal increases, but in the 80s it was how to control costs. 

State political leaders obviously strongly prefer that the national economy and theirs along with it all do well. For states and local governments, a weak economy results in reduced revenues at the same time demands for outlays rise. Since 1989 the Wisconsin economy has been relatively strong, generating more tax revenues and the base for expanded state budgets. 

After summarizing economists' arguments, pro and con, on the superiority of centralization or decentralization, Oates concludes that for various reasons a federal fiscal system is optimal [561]. Because states are positioned between central and local governments, they play an increasingly critical role in our economic well‑being, particularly in this era of devolution and retrenchment by the national government. 

What are the fiscal policies and role of the government of Wisconsin? Not equipped for macro‑fiscal management, governors and mayors, legislatures and councils, instead must be content to seek development and growth, by whatever means, in good times and bad. Moderating and biasing the economic cycle is and must remain the national government's obligation. Like most of their counterparts, current Wisconsin political leaders have emphasized job creation and expanded exports among their top priorities, with considerable success. Local governments seek investment and new businesses with a range of incentives to attract them. Nevertheless, the budget policies of Wisconsin have great consequences for the citizens, businesses, and local governments of the state. 

THE POLITICS AND PROCESS OF THE WISCONSIN BUDGET 

States do their budgeting in a variety of ways. Twenty work with a single budget bill; others will enact up to 350. Some do their best to include only appropriations; others allow policy. In Wisconsin its biennial budgets also authorize specific number of state‑agency staffing [FTEs], thereby giving budget makers and administrators a second significant handle on the magnitude of state agencies and their activities. 

The governor dominates the process. To assemble a document to raise and spend more than $30 billion, he works with his own staff, the budget director and analysts in state budget office, and agencies' secretaries and top‑level managers. The budget is the instrument to reinforce or change Wisconsin's priorities. His agenda and strategy focus policy debates and provoke reactions to his initiatives. He will include substantive policies unrelated to appropriations although they may be so intertwined as to make distinguishing the difference difficult. 

After months of work in the executive branch, the budget is ready for the governor to present to the Legislature in early February. There, the budget‑centered conflicts are not confined to disputes over program spending but also over fundamental policy issues. For example, the most recent budget bill reorganized state government itself, creating new departments, changing the administration of others, and substantially adding to the governor's power. 

THE JOINT FINANCE COMMITTEE 

The Wisconsin Legislature's Joint Finance Committee is unique; of all the committees of all state legislatures, none other is as powerful. Except for the positions of Assembly speaker and Senate majority leader, no other legislative leadership position is as coveted as the co‑chair of the JFC. Comprised of eight members of the Assembly and Senate, JFC receives and reshapes all spending and taxing bills. Because most substantive policies also involve fiscal and budget provisions, this committee's domain and power are vast. The highly‑professional Legislative Fiscal Bureau provides the JFC excellent staff support. The budget ultimately approved on the floor is likely to vary little from the bill sent out by the JFC. 

Although the Legislature enjoys discretion in spending from the General Fund, that is not the case for segregated funds, which are earmarked for specific uses exclusively. Figure 1 shows all categories of state funds and revenues deposited to them. 

Wisconsin Funds and Revenues First, the largest of states funds, the General Fund, is the depository for taxes, fees, and federal aid. General Purpose Revenue (GPR), which ordinarily goes to the General Fund, is the product of income and sales taxes. Second, each of 14 Special Revenue or Segregated funds has a specified purpose and revenue source, e.g., the Transportation, Conservation, Lottery fund, etc. generated by the gasoline tax, lottery, hunting and fishing license sales, etc. [earmarked]. Third, Program Revenue comes from, e.g., university tuition, facility license and inspection fees, and sale of state products and services. Finally, Federal Revenue, is separated, at least for fund‑accounting purposes. 

EXPENDITURES 

Wisconsin classifies state spending as [1] local assistance, [2 ] aid to individuals, and [3] direct state operations. Approximately half of state spending is in category one, i.e., transfers to assist local units, public schools, municipalities, and counties [fable 2], who without the transfers presumably would either have to reduce services or raise property taxes drastically. 

THE QUEST FOR PROPERTY TAX RELIEF 

Local units rely on locally‑generated property taxes and state aids, the latter of which are funded by state income and sales taxes. The total tax burden in Wisconsin is relatively heavy. In 1986, the Wisconsin Expenditure Commission "concluded that Wisconsin should strive to be an 'average' state [and] that since Wisconsin had a per capita income below the national average, it could not afford governmental spending as a percent of personal income above the national average" and set 1992 as the target date [Conant: 44]. Recently, however, Money Magazine ranked Wisconsin sixth among the states. While policy makers and investment recruiters may be concerned about the total tax burden, the focus has shifted to property taxes and property tax relief. 

If Wisconsin's citizens oppose both property tax increases and cuts in spending for education, as seems the case, then this difficult problem can not be solved by local units; only the state budget can address it. What more can Wisconsin reasonably do, particularly if its citizens and leaders want it to remain a high‑service state? Wisconsin's capacity to raise revenues is only about 90 percent of the average state [20th rank] but Wisconsin's effort raises 119 percent of the average state [third rank]. A great deal of the above‑average effort by state policy makers is undertaken to furnish revenues for local units of government, i.e., our schools, counties, and municipalities. 

What the governor and Legislature most want is to have the public perceive tax relief, which the public has not and may never do, despite the state's many attempts to accomplish ft. As Mikesell [418] has observed, for the purpose of property tax relief, "State‑local revenue sharing in Wisconsin dates from 1905 when the state legislature exempted utility property . . . from local property taxation. Using a state gross earnings tax instead, part of the proceeds were used to reimburse communities for their lost tax base." When the state adopted an income tax in 1911, it was to provide the revenues required for significant property tax relief. Figure 2 shows the numerous efforts at property tax relief in the following decades. When Wisconsin added a sales tax in the 1960s, the purpose was property tax relief. The Legislature has also tried several different policy instruments [Figure 3]. Today, more than half of the GPR budget is dedicated to property tax relief in the form of "State Aid to Public Schools," "State Aid to Local Governments," and "Tax Credits to Property Taxpayers." 

CHALLENGES 

In 1997, the governor and the Legislature face several severe fiscal and budget problems. First, they must fund a "balloon" payment to complete their goal of the state's funding two‑thirds of the costs of public schools. Second, they must decide how many new prisons of what types to build and staff. Third, they must decide on refinements of welfare reform as AFDC is converted to a work‑based assistance program. Fourth, they must find and return $200 million "borrowed" 10 years ago from the Wisconsin Retirement System. Finally, they must decide either to provide new revenues for transportation or to limit building and maintenance to whatever the current revenue sources provide. 

Revenues to the state in the five years before 1994‑95 grew $2.3 billion, i.e., 36 percent. Thus, the governor and Legislature saw an opportunity for major policy changes and shifts in shares of the state budget. Consequently, while the federal government and many state governments have addressed their budget problems by reducing transfers to lower levels, that has not been the case in Wisconsin, where total expenditures have and are projected to continue to increase, nearly doubling in noninflation adjusted dollars over the 1988‑1997 decade [Table 1]. 

School Aids 

A few years ago the Legislature initiated a policy to increase state aid to schools, which had declined to approximately 40 percent of total costs. The governor then seized leadership of the movement that quickly set a goal as two‑thirds of average costs. In the first phase, the Legislature added $1.2 billion; now, to reach the two‑thirds target, they must provide another $644 million in the next budget. 

While Wisconsin is not reducing transfers, it is sharply shifting the ratio between aid given to schools and aid to other local units and state operations [Table 2]. The state has dramatically increased the share of state budget appropriated for public schools [Graph 1]. Increased state aid to schools, however, wilt leave pressure on the property tax from county and municipal governments if they see in school‑tax reductions an opportunity to raise their rates. 

Corrections 

Currently, Corrections is allocated under five percent of the state budget; but the next biennial request will exceed $1 billion for operating budgets. Appropriation and capital The FY97 was 175 percent of the 1993 amount [Graph 2.] By FY98, the state's prison‑system budget will have doubled in just five years. Even this effort has not met the need for more prisons; and Wisconsin has negotiated agreements with Texas counties to house prisoners in their surplus cells. Meanwhile, a drive to privatize prisons is building. Prison policies have not controlled or reduced the demand for more correctional facilities, and the governor has conceded that Wisconsin is approaching the limits of what it can afford in capital and operating outlays. 

Medicaid 

Wisconsin bears about 40 percent of the costs of Medicaid; the federal government funds the rest. Several years ago, state Medicaid spending surpassed appropriations for the UW. In 1993, Medicaid took 7.9 percent of GPR; by 1997 it had risen by 25 percent to 9.9 percent of the GPR budgeted programs. Health care costs apparently are beyond the control of state governments. When medical costs are added to school and local aids, these three programs alone are 50 percent of the GPR budget [Table 2]. 

 Wisconsin Works [W2] 

Wisconsin's costs to reform welfare will exceed savings from the changes, at least in the start‑up phase. With costs estimated at $2.1 billion in the biennium, W2 will require $110 million more than present policies. Reform will affect more than 53,000 women and children. W2 requires work; and the state is obliged to fund [1] trial jobs, [2]wage subsidies to employers of as much as $300 a month, [3] community service jobs, or [4] job training. Substantial increases in state funding for child care will be appropriated. 

CONCLUSION 

Only one response to the public's demands for more or new services, raising taxes, is more difficult than cutting spending; and the governor and Legislature appear committed to his pledge not to increase general taxes, i.e., the income or sales taxes. Consequently, they will look, instead, to continued economic growth while holding the tine on other programs and agencies. They may increase revenues from fees and possibly impose higher taxes on tobacco and gasoline. The Legislature might consider broadening the sales tax to additional goods and services but not increasing the rates. Table 4 reveals the revenue potential in selectively broadening the sales tax, but such a bill would likely be vetoed by the governor. Pressure on the tribes' casino industry to increase payments to the state will build as the time to renegotiate the casino compacts approaches. 

The most contentious of issues is likely to be the formula by which school aids are distributed. To some extent the current equation considers valuation as well as taxing effort. Nevertheless,            actual spending per pupil varies by a ratio of 2:1 among the school districts of Wisconsin, despite the fact that, on average, two thirds will be paid by the state, which arguably could equalize spending among the many schools of the state. One proposal is to include a factor on personal income levels in the respective districts. 

As the state pays more and more of the costs of education, it is demanding more in accountability; e.g., [1] explicit state‑wide curriculum standards and [2] uniform, standardized high school graduation exams. The debate on both of these is only beginning. 

Once again the state Supreme Court has been asked to interpret the constitutional requirement that public education be "free and as uniform as practicable." It may be that whatever the Legislature does will be shaped primarily by what the Court says this language must be made to mean. 

The current session will be one of the most interesting in years. Divided government, sharpened partisanship; infra‑party problems, especially among Senate Democrats; and pressures for increases in the transportation budget concurrent with opposition to a gasoline tax increase will be evident. 

Revenue projections for the coming biennium assume that the state's economy will continue to grow, generating about five percent more revenues each year. Obviously, a recession would create major budget difficulties, revenues falling even faster than the economy itself. At that point Wisconsin, like many other states, might have to re-examine its commitment to the needless pursuit of property tax relief. 

REFERENCES

Conant, James K. James K. Conant, Winners and Losers in Wisconsin's Tax and Expenditure System, Chapter 3, vol. II Dollars and Sense: Policy Choices and the Wisconsin Budget. Madison, WI: The Robert M. La Follette Institute of Public Affairs, 1991. 

Mikesell, John L. Fiscal Administration: Analysis and Applications for the Public Sector [2nd ad.]. Chicago: The Dorsey Press, 1986. 

Oates, Wallace E. An Economic Approach to Federalism in .Samuel Baker and Catherine Elliott [ads.] Readings in Public Sector Economics. Lexington, Mass: D. C. Heath and Company, 1990, pp. 554‑565. 

Wisconsin. Department of Administration. Division of Executive Budget and Finance.

Budget in Brief.. 1995‑97.