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Revenue Collections Continue to Fall, While Medicaid Deficit Takes Large Jump

The state’s fiscal situation has gradually deteriorated in 2014, and new tax collection figures released late Friday afternoon show a continuation of that trend. That fiscal problem is exacerbated by a couple of areas where spending is growing, including a substantial increase announced today in the estimated Medicaid deficit.

Starting on the revenue side of the state’s budget ledger, here are some of the key figures gleaned from the Department of Revenue’s press release:

   

  • General Fund tax collections fell $26 million in May, compared to May 2013, which is a drop of 2.5% (measured on an adjusted basis).
       
  • Over the first 11 months of the current fiscal year, state tax revenue is down by almost $49 million or 0.4%.
       
  • Although sales tax revenue is up by $186 million or 5.2% over the last 11 months, individual income tax collections are down by almost $290 million – a drop of 4.6%.


The new numbers are worrisome because the revised state budget assumed that tax revenue would grow by about 1% in the current fiscal year. If the current trends continue over the last month of the fiscal year – so the state finishes with tax collections down by 0.4% instead of rising by 1.0% — we will come up short for the current fiscal year by roughly $200 million. And since the budget assumes about $500 million of tax growth in the second year of the biennium, we can ill afford to begin that fiscal year at a level that is $200 million below the anticipated starting point.

At the moment, the budget can easily absorb a $200 million shortfall in 2013-14, but not in the second year of the current biennium. Even if tax revenue grows by $700 million in 2014-15 (rather than $500 million), thereby getting back to the estimated amount for that fiscal year, a $200 million hole in the first half of the biennium would wipe out the slim $165 million budget balance that was previously anticipated at the end of the biennium.

Of course, the state’s fiscal headaches would be compounded if spending surpasses budgeted levels, and the revised Medicaid spending estimates released today make that a significantly greater risk.  The June 27 quarterly report from the Dept. of Health Services (DHS) raises the projected Medicaid deficit to $93 million in state General Purpose Revenue (GPR), an increase of about $73 million GPR since the previous report.  The increase is primarily because of much greater than anticipated enrollment of childless adults in BadgerCare.  DHS now expects that group to grow to 135,000 by the end of the biennium – which is about 40,000 more than the department estimated three months ago.

Taken together, the latest revenue and spending developments raise serious questions about the wisdom of committing so much of the projected state surplus for another round of tax cuts, before the projected revenue increase actually materialized.  To maximize the size of the newest round of tax cuts, lawmakers suspended the portion of the statutes requiring half of the revenue increases to be deposited in the Rainy Day Fund.  It’s beginning to look like the result will be a significant increase in the structural deficit, and perhaps more immediate budget problems in fiscal year 2014-15.

Jon Peacock

 

Originally posted to WI Budget Project on Wed Jul 02, 2014 at 08:41 AM PDT.

Also republished by Badger State Progressive.

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