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Published - Tuesday, May 13, 2008

Budget fix includes borrowing, some cuts, but no hospital tax

By JASON STEIN | Lee Newspapers

Legislative leaders announced a deal Monday to fix a $527 million hole in the state budget by nixing major tax hikes, cutting some spending, increasing borrowing and delaying payments.

But with more than a half-billion dollars of the state's cash still hinging on three legal battles, the state may not have weathered all — or even the worst of — the problems in the budget ending in June 2009, analysts and the lawmakers said.

Add to that a shaky economy, and Assembly Speaker Mike Huebsch said he couldn't promise the budget deal he helped broker would see the state through the end of the current budget.

"There's a lot of 'what ifs,' there's no question,'" Huebsch, R-West Salem, said at a Capitol news conference Monday. "We've dealt with and addressed the concerns that we know are before us right now."

There was little rejoicing in the Capitol over the deal announced by Huebsch, Senate Majority Leader Russ Decker, D-Weston, and Assembly Minority Leader Jim Kreuser, D-Kenosha. Parts of the proposal already face strong opposition from Gov. Jim Doyle and skepticism from lawmakers from both parties. Still, the leaders predicted the deal would pass both houses.

In a news conference Monday, Doyle all but promised to veto at least some provisions of the deal, including $209 million in borrowing against future payments from tobacco companies and delaying $125 million in school aid payments from the state. The deal also dropped a tax on hospitals favored by Doyle and Democratic lawmakers.

"I'll wait and see what comes to my desk," Doyle said of the school payment delays. But "I'm not going to jeopardize the schools of this state."

Decker said the deal preserves state services and avoids what he characterized as an unwise raid on the state's road fund.

There could be a future cost to the decision by Huebsch and Decker not to balance the budget primarily with spending cuts or tax increases, said Todd Berry, president of the Wisconsin Taxpayers Alliance.

If lawmakers face another shortfall in the coming months, tax hikes or spending reductions will have less effect because much of the two-year budget will be over, he said.

The Legislature's nonpartisan budget office has outlined several other possible budget pitfalls:

A major tax case in which a state appeals court has ruled the state must stop charging sales tax on certain kinds of computer software and issue refunds for several years of past sales. If the state Supreme Court upholds the lower court's ruling, the state could find itself $293 million short for this budget.

The Wisconsin Medical Society has sued in Dane County Circuit Court to block transfers of $200 million out of a fund to compensate victims of medical malpractice and their families. That case, which stems from the original October budget deal, is also pending.

The state still is expecting $92 million in gambling payments from the Ho-Chunk tribe by June 2009. Because of legal disputes, the tribe has not paid the state in two years. The timing of those payments could be affected by a lawsuit between the state and the tribe in federal court in Madison.

It appears likely the state could lose at least the computer software case, Berry said. The other two cases make it difficult to predict whether the state will receive the revenue for this budget cycle, he said.

The deal proposed Monday was approved by a budget conference committee on a 5-1 vote (Sen. Scott Fitzgerald, R-Juneau, was the lone dissenter) and sent to the Senate for a vote today. The plan will be up for final approval Wednesday in the Assembly.

Fitzgerald said he opposes the deal because he expects Doyle to try to transfer more money from the state's road fund through his veto pen, a move Doyle did not rule out Monday.

Kreuser said some aspects of the deal, such as the lack of the tax on hospitals favored by Doyle and Democratic lawmakers, would lead many Senate Democrats to vote against it, although he believes the deal will still pass.