Wisconsin Economic Summit III Fiscal Policy Reform Forum

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Wisconsin Economic Summit IIIFiscal Policy
Reform Forum
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Contributors

• Contributors
• Terry Ludeman
• Tim Hanna
• Editor
• Doug Bradley
• Technical Advisor
• John Keckhaver
• Contributing Consultants
• Bob Campbell
• Natalie Ellertson

• Contributing Writers
• Mark Bugher
• Dale Cattanach
• Mike Ley
• Joe Leean
• John J. Maurer
• Jim Morgan
• Carol Skornicka
• Barbara Ulichny
• Richard C. Wegner

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Fiscal Policy Reform Forum Moderator

• Jim Morgan
• Chairman, State Ethics Board
• Former President of the Wisconsin Taxpayers
  Alliance
• Former Secretary of Revenue in the Knowles
  Administration

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2003-2005 Potential Deficit
A POTENTIAL 2.8 BILLION DEFICIT IN THE
2003-2005 STATE GENERAL PURPOSE BUDGET
5
A Description of Our Financial State

• Low personal income
• High tax state
• Above average government spending

6
Spending Increases in the Second Year of the
Biennium in the Last 10 Years

• 1993 - 58 Million
• 1995 - 136 Million
• 1997 - 209 Million
• 1999 - 274 Million

7
Wisconsins GAAP Deficits
In terms of the Generally Accepted Accounting
Principles (GAAP)

• Wisconsin has had a deficit exceeding 1 Billion
  in eight of the last 12 years
• In 2001, Wisconsins 1.2 billion deficit was the
  largest of the 50 states

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Spending Percentage of General PurposeReview
Budget
Spending Percentage of General Purpose Review
Budget
44 - School Aids (Includes Credits) 9 -
Medical Assistance 9 - University of
Wisconsin System 9 - Shared Revenue 6 -
Corrections 77 - Cumulative Total of 5
Programs Note Percentages are rounded
9
Can We Restructure The StatesRevenue System?

• To raise some additional revenues
• To provide some tax relief where needed
• To promote future economic growth

10
Difficult Path Ahead

• There are no easy answers, only HARD decisions
• Solutions will be controversial- there is no way
  to avoid it
• Economic growth is the only sure way out of our
  problem

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Guiding Principles for Tax and Spending Reform

• Carol Skornicka
• Former Policy Advisor in the Lucey
  Administration
• Former Secretary of Department of Industry,
  Labor and
• Human Relations in the Thompson Administration

12
Promote Economic Growth

• Raise personal income by
• Encouraging expansion of existing business
• Encouraging development of new business
• Encouraging importation of new businesses
• Encouraging quality education and training for
  Wisconsin residents
• Encouraging graduates to live and work in
  Wisconsin

13
Need Balanced Relationship

• Move toward a balanced relationship between
• Personal income
• Government spending
• Taxes

14
Restore Sound Fiscal Management in Government

• Balance the state budget using standard
  accounting practices
• Create and fund a state budget stabilization
  account to weather economic fluctuations
• Reform state/local financial relationships
• Minimize shifting the tax burden from one level
  of government to another (control property taxes)
• Give citizens, workers and businesses the
  confidence that their government works

15
Modify the Tax System

• Simplify tax calculation
• Distribute the tax burden fairly

16
Long-Term Spending Reform

• Make a commitment to long-term spending reform
  in
• State government
• Local government
• Institute reforms designed to increase
  productivity and efficiency through innovation

17
Tax Reform

• Joe Leean
• Former Republican Senator
• Former Chairman of the Joint Committee on
  Finance
• Former Secretary of Health and Family Services
  in the
• Thompson Administration

18
Ten Largest GPR Programs 2002-2003

of
Total Elementary and Secondary School
Aids 4,750,457,600 39.9 39.9 Medical
Assistance 1,024,273,500 8.6 48.5 UW
System 1,056,317,000 8.9 57.4 Shared
Revenues 1,029,415,800 8.7 66.1 Correctional
Operations 734,106,300 6.2 72.3 School Levy
Tax Credit 469,305,000 3.9 76.2 Community
and Juvenile Correctional Services 299,679,500 2.
5 78.7 Judicial and Legal Services 202,224,70
0 1.7 80.4 Public Assistance 174,717,800 1.5
81.9 Technical College System
Aids 141,636,400 1.2 83.1
Amount
of Total
Cumulative
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Comprehensive Tax Reform

• Simplify Wisconsin tax code and forms
• Lower income tax rates
• Expand sales tax and user fees
• Raise new revenues to solve budget crisis
• Restore fiscal sanity and bond rating
• Rehabilitate Wisconsins high tax reputation

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2001 IRS Form 1040
Line 33
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Line 39
2001 IRS Form 1040
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2001 Wisconsin State Income Tax Form
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2001 Wisconsin State Income Tax Form
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Fiscal Integrity

• Spending restraint
• New revenues
• Revised tax form
• Lower income taxes
• Budget stabilization account
  
  

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Overall State Tax Structure

• Mike Ley
• Former Secretary of Revenue in the Earl
  Administration
• Former President of the Madison City Council

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Percentage Distribution of General Fund
Taxes2001-2002 Actual and Proposed

• Taxes 2001-02 Actual Proposed
• Individual Income 49.7
  35.4
• General Sales and Use 36.9
  49.4
• Corporate Income 5.0 5.4
• Public Utility 2.5 2.4
• Cigarette 2.9 4.2
• Liquor 0.4 0.3
• Beer 0.1 0.1
• Tobacco 0.1 0.1
• Estate 0.8 0.8
• Insurance Companies 1.0 0.9
• Miscellaneous 0.6 1.0
• Total Taxes 100.0
  100.0

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Personal Income Tax

• Maintain the current brackets but reduce the tax
  rates as shown
• Current 2003-2004 2004-2005
• 4.60 4.55 4.09
• 6.15 6.09 5.47
• 6.50 6.44 5.79
• 6.75 6.68 6.01

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Personal Income Tax Average Effective Rates

• Selected Income Ranges
• FAGI Current Proposed
• 15,000 - 20,000 1.6 1.3
• 30,000 - 40,000 3.4 2.4
• 40,000 - 50,000 3.7 2.5
• 50,000 - 60,000 4.0 2.7
• 70,000 - 80,000 4.3 3.0
• 90,000 - 100,000 4.6 3.3
• 100,000 - 150,000 4.7
  3.5
• 150,000 - 200,000 4.7 3.9
• 200,000 - 250,000 4.6 4.0
• Progressivity of the Income Tax is Maintained

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Sales Tax

• Increase the rate from 5 to 6
• Expansion of tax base to additional services

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Corporate Franchise Tax

• No Changes

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Cigarette Tax

• Increase from .79 to 1.29 per pack

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Gasoline Tax

• Increase by .02 per gallon
• Money to go to
• 80 to General Fund 20 to SEG in 2003-2004
• 60 to General Fund 40 to SEG in 2004-2005
• Eventually all will go to SEG transportation fund
• Long-term economic development objective
• Marquette Interchange replacement 2 Billion

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Auto Registration Tax

• Implement a formula based on weight and age of
  vehicle
• Or
• Increase fee from 45 to 65
• Money to Go
• General Fund/SEG Highway Fund Split same as
  Gasoline Tax

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Spending Cuts

• Mark Bugher
• Former Secretary of Administration and Revenue
  in the
• Thompson Administration

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Proposal Summary Spending Reductions and Revenue
Increases
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Education (K-12)

• Since 1997 Over 5 Billion in additional state
  spending
• During 1990s
• School aids up approximately 150
• Personal income up only 70

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Proposal Summary Spending Reductions and Revenue
Increases
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Corrections

• 1990 1991 208.6 Million
• 2000 2001 804.4 Million
• This represents an increase of 286
• 14.4 Annually

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Proposal Summary Spending Reductions and Revenue
Increases
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Wisconsin Comparative Expenditure Trends

• Bob Campbell
• Global Senior Partner, Deloitte Consulting

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46 States Face a Budget Shortfall in FY 2002

• Like most other states, Wisconsin faces a large
  budget shortfall.

Wisconsins projected budget shortfall is 2.8
billion for the biennium
Faced or facing possible budget shortfall
(46) No budget shortfall currently reported (4)
State Budgets Update NATIONAL ASSOCIATION OF
STATE BUDGET OFFICERS Data at http//www.nasbo.org
/Publications
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Wisconsins Expenditures and Expenditure Growth
Trends
From 1996 to 2000, Wisconsins per capita
expenditures and rate of expenditure growth have
exceeded national averages.
4.0
4.0
VT
VT
High Expenditures, High Growth
High Expenditures, High Growth
Low Expenditures, High Growth
Low Expenditures, High Growth
3.0
3.0
National Average Index
NC
NC
ND
ND
Compound Annual Growth
AZ
WI
AZ
UT
UT
WI
2.0
2.0
From FY 1996
-
2000
VA
VA
CO
CO
AR
AR
MN
MN
MS
MS
NH
NH
MO
MO
OR
OR
1.0
1.0
IN
IN
CA
CA
KY
KY
TX
TX
SC
SC
AL
AL
DE
DE
IA
IA
NE
NM
NE
NM
ID
ME
ID
ME
NV
NV
0.0
0.0
OH
OH
FL
FL
KS
GA
KS
GA
CT
WY
CT
WY
MD
MD
WA
WA
PA
PA
TN
TN
IL
IL
MI
MI
(1.0)
(1.0)
SD
SD
AK
AK
MT
MT
MA
MA
NY
NY
LA
LA
WV
WV
(2.0)
(2.0)
RI
RI
OK
OK
HI
HI
(3.0)
(3.0)
NJ
NJ
Low Expenditures, Low Growth
Low Expenditures, Low Growth
High Expenditures, Low Growth
High Expenditures, Low Growth
(4.0)
(4.0)
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
Source U.S. Census Bureau
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WI Expenditures and Growth in Spending that Fall
Near National Averages
Similar to National Average Wisconsins per
capita spending in Education, Highways, Interest,
and Government Administration aligns with other
states.
10.0
High Expenditures, High Growth
Low Expenditures, High Growth
8.0
6.0
4.0
Education
Interest
2.0
Government Admin
0.0
Highways
-2.0
-4.0
-6.0
-8.0
Low Expenditures, Low Growth
High Expenditures, Low Growth
-10.0
0.0
0.5
1.0
1.5
2.0
Source U.S. Census Bureau
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WI Expenditures and Growth in Spending that
Fall Outside National Averages
Outside the National Average Wisconsin may be
overspending in certain categories compared to
other states.
10.0
High Expenditures, High Growth
Low Expenditures, High Growth
8.0
Corrections
6.0
Hospitals
4.0
Insurance Trust
Education
Interest
2.0
Government Admin
0.0
Welfare
Highways
Health
-2.0
Parks
-4.0
-6.0
-8.0
Low Expenditures, Low Growth
High Expenditures, Low Growth
-10.0
0.0
0.5
1.0
1.5
2.0
Source U.S. Census Bureau
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WI Expenditures and Growth in Spending that Fall
Far from National Averages
Significantly Different from National Average
Wisconsin spending trends for Police, Natural
Resources, and Special Programs and Funds
categories fall far from other states.
10.0
High Expenditures, High Growth
Low Expenditures, High Growth
Special Programs Funds
8.0
6.0
Corrections
Hospitals
Police
Insurance Trust
4.0
Education
Interest
2.0
Government Admin
0.0
Welfare
Highways
Health
-2.0
Parks
-4.0
-6.0
Natural Resources
High Expenditures, Low Growth
-8.0
Low Expenditures, Low Growth
-10.0
0.0
0.5
1.0
1.5
2.0
Source U.S. Census Bureau
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Is Wisconsin Overspending in any Categories?

• Expenditure Trend Analysis provides the starting
  point that identifies focus areas for cost
  reduction.
• This analysis provides indicators of areas
  warranting additional focus such as
• Education Wisconsins largest expenditure in
  FY2000
• Corrections The rates of spending and growth in
  spending were higher than the national average in
  FYs 1996 2000
• Insurance Trust
• Special Programs and Funds

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New Ideas Help Wisconsin Achieve Results

• Wisconsin can learn from proven best practices
  from other states and the commercial sector.
• Operations Redesign Review administrative models
  for duplication and redesign to optimize for
  efficiency
• Outsourcing Perform cost/benefit analysis to
  evaluate solutions for cost savings in service
  delivery
• Statewide Procurement Identify options to reduce
  cost through automation and a consolidated
  purchasing approach

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Opportunities for Spending Reform

• Natalie Ellertson
• Public Sector Consultant, Virchow Krause

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Pending Retirements

• 67,000 Current employees
• Approximately 25 eligible to retire in the next
  3 to 5 years
• Generate savings through enterprise-wide
  workforce planning to reduce positions
• Maintain service quality by
• Employing innovative uses of technology
• Providing direct customer services through the
  internet
• Flattening organizational structureseliminate
  levels
• Streamlining processes

w w w . vi r c h o w k r a u s e . c o m
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Performance Based Budgets

• Require performance based budgets for each agency
• Establish clearer missions
• Commit financial resources to mission priorities
• Eliminate programs and spending that doesnt
  correspond clearly to mission priorities
• Establish performance measures to improve and
  focus on agency performance

w w w . vi r c h o w k r a u s e . c o m
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Enterprise-Wide Reorganization

• Consider Enterprise-Wide Reorganization
• Last time Kellet Reorganization of 1967
• Organize around economic development best
  fiscal strategy
• Many E/D programs throughout the state government
  need to be consolidated

w w w . vi r c h o w k r a u s e . c o m
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Achieving Savings

• Savings through
• More efficient service delivery technology
• Low Priority program elimination
• Workforce planning to achieve personnel reduction
• Innovative uses of the Internet and technology

w w w . vi r c h o w k r a u s e . c o m
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Enterprise-Wide Approach to Technology

• Bob Campbell
• Global Senior Partner, Deloitte Consulting

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IT Transformation Yields Savings and Improved
Service

• Many states have realized significant cost
  savings and customer improvements by focusing on
  IT transformation
• IT transformation offers opportunities in many
  states due to
• Decentralized IT management structures
• Challenges faced in attracting and retaining top
  technology talent
• Proliferation of aged legacy systems which are
  frequently unable to communicate with each other

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Wisconsin Scores Below Other States in Use of IT
Governing Magazine gives Wisconsin a B- for
its use of Information Technology.
State Grades 2001 Information Technology
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Maximize Your Technology Investment

• Manage technology as an enterprise-wide resource
  to improve citizen service and generate cost
  savings
• Create a true Chief Information Officer (CIO)
  position with full enterprise-wide authority
• Implement an enterprise-wide approach to
  technology planning, acquisition, management, and
  standards
• Capitalize on shared services opportunities
• Expand use of off-the-shelf IT solutions to
  drive savings
• Transform Government web-sites to adopt
  commercial best practices

57
Local Government Reform

• Tim Hanna
• Mayor of Appleton, WI

58
Political Jurisdictions

• Two miles, 20 different political jurisdictions

59
Current Governmental Structure

• If we were creating Wisconsin over again, would
  we have
• 72 Counties
• 584 Municipalities
• 1266 Towns or Townships
• 696 Special Districts
• 426 School Districts

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Complex Arrangement

• This complex arrangement of local governments is
• Costly
• Inefficient

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Saving Money and Improving Services

• How can we save money and improve services?
• Service Delivery consolidations (health, police,
  fire, streets)
• Actual jurisdictional consolidation

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Creating Incentives for Consolidation

• Eliminate obstacles to consolidations
• Create incentives

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Consolidate, Reduce and Improve

• Consolidation could reduce costs and improve
  service
• Facilitates Economic Development

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Benefits

• This will help the states fiscal crisis because
• 60 of state taxes are spent locally
• Saving money locally reduces the need for state
  taxes
• Keeps property taxes under control

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Regional Strategies

• Terry Ludeman
• Economist, Department of Workforce Development

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Seven Economic Regions
North Central Wisconsin
Northern Wisconsin
Northeastern Wisconsin
Southeast Wisconsin
Northwestern Wisconsin
South Central Wisconsin
Southwestern Wisconsin
67
Geographic Distribution of Wisconsin
Metropolitan Statistical Area Counties
68
Metropolitan Statistical Areas by Economic
Regions
69
Seven Economic Regions
North Central Wisconsin
Northern Wisconsin
Northeastern Wisconsin
Southeast Wisconsin
Northwestern Wisconsin
South Central Wisconsin
Southwestern Wisconsin
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Northwestern Wisconsin
Percent Of State
Number
2000 Population 464,789 8.7 Number of
Jobs 193,833 7.1 Dominant Industries State
Government (Education) Durable Goods
Manufacturing Retail Trade Transportation
Counties Barron, Burnett, Chippewa, Douglas,
Dunn, Eau Claire, Pierce, Polk, Rusk, St. Croix,
Washburn
71
Southwestern Wisconsin
Percent Of State
Number
2000 Population 391,199 7.3 Number of
Jobs 172,344 6.3 Dominant Industries Federal
Government Local Government Agricultural
Services Retail Trade Counties Buffalo,
Crawford, Grant, Iowa, Jackson, Juneau, La
Crosse, Lafayette, Monroe, Pepin, Richland,
Trempealeau, Vernon
72
Northern Wisconsin
Percent Of State
Number
2000 Population 138,591 2.6 Number of
Jobs 56,562 2.1 Dominant Industries Federal
Government Native American Tribal
Activities Construction Retail Trade Services
Hotels, Lodges, Health Care Counties Ashland,
Bayfield, Forest, Iron, Oneida, Price, Sawyer,
Washburn
73
North Central Wisconsin
Percent Of State
Number
2000 Population 423,920 7.9 Number of
Jobs 200,730 7.3 Dominant Industries Agricultu
ral Services Durable Goods Manufacturing Nondurabl
e Goods Manufacturing Transportation Finance,
Insurance Real Estate Services Counties Clark,
Langlade, Lincoln, Marathon, Portage, Taylor,
Waupaca, Wood
74
South Central Wisconsin
Percent Of State
Number
2000 Population 956,825 17.8 Number of
Jobs 501,099 18.3 Dominant Industries State
Government (Education) Agricultural
Services Construction Retail Trade Finance,
Insurance Real Estate Services Counties Adams,
Columbia, Dane, Dodge, Green, Green Lake,
Jefferson, Marquette, Rock, Sauk, Waushara
75
Southeast Wisconsin
Percent Of State
Number
2000 Population 1,932,908 36.0 Number of
Jobs 1,008,818 36.9 Dominant
Industries Federal Government Durable Goods
Manufacturing Wholesale Trade Finance, Insurance
Real Estate Services Counties Kenosha,
Milwaukee, Ozaukee, Racine, Walworth, Washington,
Waukesha
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Northeastern Wisconsin
Percent Of State
Number
2000 Population 1,055,452 19.7 Number of
Jobs 548,310 20.0 Dominant Industries Construc
tion Durable Goods Manufacturing Nondurable Goods
Manufacturing Transportation Counties Brown,
Calumet, Door, Florence, Fond du Lac, Kewaunee,
Manitowoc, Marinette, Menominee, Oconto,
Outagamie, Shawano, Sheboygan, Winnebago
77
Formal Regional Economic Development Councils

• Membership on the councils to include
• Area business leaders
• Area labor leaders
• Area UW campus chancellors
• Area specific private college presidents
• Area technical college presidents
• Area K-12 representatives
• Area transportation officials
• Area local government leaders
• Regional and local economic development
  practitioners
• Other appropriate regional players

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Support Economic Development Regions

• Organize Agencies of State Government to conform
  to and support Economic Development Regions
• Department of Transportation
• Department of Natural Resources
• Department of Workforce Development
• Department of Agriculture, Trade and Consumer
  Protection
• Department of Commerce
• Department of Tourism

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What Regional Economic Development Councils
Would Do

• Develop a region specific economic development
  strategic plan
• Establish economic development as the prime goal
  for the area
• Promote partnerships and cooperation between
  public and private entities and between
  communities of the region
• Focus energies and resources on separately
  identified potentials
• Put all agencies on the same page, focused on the
  same goal, cognizant of regional market forces

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Results of Formalized Regional Economic
Development Council

• Encourage collaboration and cooperation
• Hold institutions and agencies accountable for
  regional economic development success
• Effectively utilize State resources
• Focus all efforts on economic development
• Supercharge our economic development efforts,
  thus results

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Conclusion

• The plan that we have presented accomplishes
  several objectives
• It solves the fiscal crisis without gimmicks
• It promotes long-term economic growth
• It restores sound fiscal management
• It establishes a budget stabilization fund
• It makes immediate contributions to the
  stabilization fund to avoid future crisis
• It starts the process of bringing expenditures
  and taxes into line with personal income

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Wisconsin Economic Summit IIIFiscal Policy
Reform Forum