Rural broadband expansion, prescription drug price reductions, ag investment, and now marijuana legalization and regulation. The Governor hasn't released his budget yet - so why are these topics making state budget headlines? What happens next? Will the budget be done on time this year? I'll answer these questions and provide you with everything you need to know in this 2021-23 budget primer.
While Gov. Evers has yet to formally unveil his 2021-23 executive budget, the aforementioned items are some of major policy initiatives he has already begun previewing in advance of the state budget address taking place next Tuesday, February 16. Prior administrations also set the stage like this in years past to get as much play in the press before handing the most important bill of the two-year session to the Legislature for consideration and alteration. Question 1 was the timeliest and has now been answered, but let's go over Wisconsin budget basics and how we got here.
The State of Wisconsin's fiscal year runs from July 1 to June 30 and we budget in two-year cycles. The budget is an appropriation schedule for all of the government agencies and quasi-government entities within the executive branch and their programs. Revenue sources for these expenditures include:
- State General Purpose Revenue (GPR), derived mostly from individual and corporate income tax, excise taxes, and sales tax.
- Program Revenue (PR), derived from user fees, receipts from product sales, reimbursements, and tuition.
- Segregated Revenue (SEG), which is a revenue source where dollars are put in a specific fund other than the general fund, i.e.: fuel tax placed in transportation fund.
- Federal Revenue (FED), which is exactly how it sounds - dollars received by a state agency from the federal government for a specific purpose.
All told, including bond revenue for UW and state building projects, the most recent two-year budget was $83.5 billion all funds.
We are currently operating in the waning months of 2019-21 budget. Therefore, a new budget will theoretically have to be passed and signed into law for the start of fiscal year 2022 on July 1. Theoretically? More on this later.
From the Legislature's perspective, February 16 is the first big milestone in the 2021-23 budget process. But for the Governor, it is the culmination of months of planning and development. Back on June 5, 2020, the Governor gave his budget marching orders to state agency heads, who in turn came back with their agency budget requests last September. From there, the State Budget Office and the Governor's team have been crafting budgets and policy for each agency which will all be packaged into the executive budget we get to see for the first time next Tuesday night. The highest-profile bill each session, the executive budget is where the Governor gets to showcase and attempt to pass his top priorities.
Hopefully a few of the questions have been answered and you have a sound grasp of where things currently stand. After the budget address and the administration's marketing of the proposal, the spotlight begins to shift to the Legislature, specifically the Joint Finance Committee (JFC). Eight members of each house – 6 majority party members and 2 minority party members – make up the 16-member panel. JFC is co-chaired by Rep. Mark Born (R-Beaver Dam) on the Assembly side and Sen. Howard Marklein (R-Spring Green) on the Senate side. JFC takes possession of the bill and introduces it right away – typically the committee's fastest meeting of the entire session.
About one month after introduction, the Legislative Fiscal Bureau (LFB) – a nonpartisan legislative service agency and the gold standard for all things state budget – will release a plain language summary of everything in the budget bill. Around the time that document is released, JFC will hold their biennial "roadshow" – typically a set of five hearings – throughout the state to glean input from the public, stakeholder groups, trade association membership, and others.
Once those steps are complete, the committee will begin tackling each subarea of the budget one by one in executive sessions. These voting sessions are where the Legislature's substitute amendment to the Governor's budget bill is compiled. The LFB prepares budget papers with alternatives for JFC to consider for each area, and members of the committee may bring forward specific motions within the day's subject area(s). Process-wise, JFC usually handles the numerous small, noncontroversial areas first before moving into the larger agencies. The big areas are usually chock full of policy changes, new initiatives, and large dollar amounts where the final decision points all need to be negotiated over several weeks.
To put a finer point on budget subareas, these are typically state agency budgets. However, numerous agencies house large programs that are all taken up separately. The Department of Corrections is a good example with their large budget, large footprint, and large employee count. DOC gets split up into adult corrections, juvenile corrections, community corrections, and "departmentwide" sections. This is getting into the minutiae, but important to keep in mind when following the budget process closely.
In April, May, and June, JFC normally meets twice a week to approve or deny what ends up being hundreds of decision items. When things are staying on schedule, this process wraps up in early June and the budget bill, as amended by JFC, goes to both houses of the legislature for approval. The budget is enormous, but at the end of the day it is a bill that must go through the legislative process like any other one would.
In a perfect world, the bill is approved in each house and sent along to the Governor by the end of June so it can be signed and go into effect for the new fiscal year on July 1. However, we do not live in a perfect world and sometimes the JFC process takes longer, or there are squabbles between the two houses that delay final passage of the bill. This scenario is often the one that plays out, even under single-party control of the executive and legislative branches. With power currently split among the branches we also have another situation that could cause a new budget not to be in place by July 1 – a full gubernatorial veto. Luckily, the state continues to operate at the previous budget levels until a new one is signed into law.
This Year’s Big-Ticket Items and Agencies Impacting the Banking Industry
In its analysis of the state budget, WBA focuses on agencies and items that have the greatest impact on you, your bank, and the state’s economy. In fact, WBA’s advocacy team reviews the budget line by line and works with legislative leadership and agency heads to educate, inform, and lobby for pro-banking policies. The list of agencies include:
Tax Appeals Commission (DOR)
These are the nuts and bolts of the budget and the process it goes through. Let's briefly go over some of the primary policy proposals the Governor has previewed so far, and what some of the other big-ticket items will be this year.
Gov. Evers proposing the legalization of recreational marijuana has made the biggest splash so far. While many legislators in the GOP-controlled legislature have slowly come around to the prospect of limited legalization for medical use, full recreational legalization will likely be a bridge too far and is unlikely to become law.
In his State of the State address, the Governor called for $200 million in funding for broadband infrastructure expansion and consumer subsidies. This proposed amount far exceeds what has been approved in years past, but there is a bipartisan appetite for doing more on the broadband front.
The Governor is also calling for an agriculture package totaling $43 million that invests in several existing programs and would grease the skids for producers and food bank collaboration to help the needy. This is large ask, but there is usually agreement on helping the ag sector.
Additional investment in mental health services statewide and Medicaid expansion. There has been agreement on the need to do more in the mental health realm in recent years, but not a consensus on how to accomplish that. Medicaid expansion has been a top priority for Democrats for several sessions and Republicans always shoot it down due to existing options, its potential impact on the private insurance market, and ideological opposition to expanding welfare. The amount of federal funding that expansion would allow Wisconsin to capture is becoming increasingly difficult to ignore, though.
New measures to drive down the cost of prescription drugs and increase transparency for consumers. There has been bipartisan agreement here, especially reforming the role of prescription benefit managers, but not much has been signed into law.
With the budget dropping in just a few days, we will be entering the most hectic portion of the entire two-year legislative session. I hope this initial breakdown has been helpful.