DJ Wisconsin Expected a Bad Year for Tax Revenue. It Was Wrong.
Wisconsin's projected tax revenue has rebounded from grim estimates late last year.
Tax collections for 2020 and the current budget year are now generally in line with the pre-pandemic targets.
The state has benefited from an improved economic climate and several large payments of back taxes by companies the state had audited, according to the legislative fiscal bureau, a nonpartisan service agency of the state legislature.
The bureau is now projecting Wisconsin will take in nearly $1.2 billion more in tax revenue during budget years 2021 through 2023 than Gov. Tony Evers' administration had expected in November. Collections for 2021 are on track to hit the bureau's pre-pandemic estimate of $18.1 billion.
The surprising resiliency of the Wisconsin budget shows the impact of massive federal stimulus efforts across the economy in boosting consumer spending power, stabilizing financial markets and helping keep businesses afloat. Congress is currently debating future stimulus efforts, as the country ramps up vaccinations.
The success of high earners and their employers during the pandemic has also helped protect Wisconsin's state revenue.
"So many of the jobs being lost are relatively low-wage jobs," said Tom Jackson, a regional economist for the Midwest with IHS Markit, which produces the forecast that Wisconsin uses to project tax revenues. "Not to say that those jobs don't matter. But from the standpoint of tax revenues it's a big deal that so many of the higher-paying jobs -- those folks have been able to get back to work."
Around the country, states are improving their financial outlooks, as revenue collections outpace expectations. After surveying state data for budget year 2020, Moody's Analytics in December revised its projected three-year shortfall for all states combined to $224 billion. In September, that group -- the economic analysis arm of Moody's Corp. -- had estimated that the gap could range from $273 billion to $434 billion.
Business has bounced back across Wisconsin at places like Jerry's Barbershop in Oshkosh, where owner and sole barber Brian Davis reopened last spring after a state-mandated two-month closure.
"It was a nuthouse for about three months," said the 57-year-old, who charges $15 for a haircut in the small shop his father started in 1966. Despite the pandemic, business since has remained brisk. "I have several customers who didn't come back -- older parents, grandparents, who now cut their own hair. But I would say it's 98% back to normal."
The better Wisconsin tax-revenue projections mean a much brighter budget picture going forward for Mr. Evers, who is expected to roll out a new spending proposal this month for the two years beginning July 1. So far no changes have been made to the current year's budget, from which officials cut about $300 million, reducing spending on child welfare services, senior care, higher education and other areas, according to state documents.
The state university system has endured furloughs and programming cutbacks and drawn down reserves during the pandemic. Officials there are hoping that the rosier financial projections will translate to more robust funding from the governor and legislature going forward, said spokesman Mark Pitsch.
Industries like manufacturing and certain types of goods, like those involved in home improvement and home entertainment, have performed well, Mr. Jackson said, and working from home has gone better than expected for many companies.
Wisconsin's December 2020 corporate tax collections were 37% higher than in December 2019, according to the state revenue department.
In Beloit, a city of nearly 38,000 on the Illinois border, Amazon opened in August a $100 million distribution center that now employs 1,200 people, said City Manager Lori Curtis Luther. Several other large employers, including Frito-Lay and ABC Supply Co., a large roofing wholesaler, have worked on expansions throughout the pandemic, she added.
"I want to be sensitive to the businesses, especially small businesses, who suffered as a result of Covid-19," Ms. Luther said. "But as a whole, you know, the city of Beloit really continues to grow our economy, in spite of the pandemic."
Investor confidence in Wisconsin is up. The difference between the yield on Wisconsin general obligation bonds and AAA-rated bonds has dropped to 0.07 percentage points. That is lower than at any point since the pandemic began, according to Refinitiv TM3, meaning that bondholders are demanding less of a concession to hold Wisconsin debt.
Wisconsin businesses benefited from generally looser restrictions on business than in neighbors Illinois and Minnesota after a number of court reversals and legislative challenges to restrictions imposed by Gov. Evers, a Democrat.
That has helped bars and restaurants outside the urban centers like Madison and Milwaukee, where restrictions are tighter, as well as those near the state line. "Our members along the borders are doing very well, " said Pete Madland, executive director of the Tavern League of Wisconsin.
The economic trajectory of the next few years is far from guaranteed, however, and rests heavily on the efficient distribution and effectiveness of Covid-19 vaccines, analysts said.
"Our forecast is predicated on the idea that by the end of 2021 we'll be able to get back to doing things more like we were," Mr. Jackson said.
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(END) Dow Jones Newswires
February 05, 2021 09:01 ET (14:01 GMT)
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