State projects revenue growth, $4 billion surplus

New numbers released  by the state Department of Administration (DOA) estimate that the state will close the current fiscal year with a general fund surplus of about $4 billion.

In addition to the surplus, the state will have in its coffers another $1.9 billion in its budget stabilization fund, or Rainy Day account, a record-high level.

Gov. Tony Evers said his administration has worked hard to be fiscally prudent and to reduce the state’s debt while still making strategic investments in previously neglected needs and priorities.

“We must continue to balance these important obligations in our next biennial budget and stay within our means while continuing to make the critical investments we need to maintain our economic momentum,” Evers said. “Our state and our economy remain in good shape thanks in no small part to the work Wisconsinites have done together these past five years, and I look forward to building upon our efforts in my next biennial budget in 2025.”

Along with the DOA report, the state Department of Revenue (DOR) provided updated tax revenue estimates, which the administration says is based on current state and federal tax laws. 

Those estimates are expected to rise modestly throughout the next biennium.

According to the report, state tax revenues will rise by $683.1 million in 2024-25, a 3.2 percent increase over 2023-24, for a total revenue estimate of $22.013 billion. Revenues are also projected to rise by $644.5 million in 2025-26, a 2.9-percent increase over 2024-25, for a total revenue estimate of $22.657 billion.

Looking further out, the administration estimates $382.7 million in state tax revenue increases in 2026-27, a 1.7-percent increase over 2025-26 for a total revenue estimate of $23.040 billion.

“We’re seeing continued positive impact from Gov.  Evers’ dedication to prudent fiscal management,” said DOA secretary Kathy Blumenfeld. “As this report lays out, we have a strong financial outlook going into 2025.”  

The DOA report

In the report, Blumenfeld said the state’s fiscal condition remains on sound footing, and she pointed to the budget surplus and rainy day fund as an example of the robust financial situation.

“We recently released the state’s Annual Fiscal Report for the 2023-24 fiscal year, which noted a positive general fund gross balance of over $4.6 billion, a figure well above the most recent formal estimates released in June of this year,” Blumenfeld wrote. “In addition, the state’s budget stabilization fund recorded a balance of $1.9 billion at the end of the 2023-24 fiscal year, the largest in state history and nearly six times the balance at the end of the 2017-18 fiscal year.”

The estimated 2024-25 fiscal year ending General Fund balance and the estimated Budget Stabilization Fund balance amount to 25.2 percent of the 2024-25 fiscal year state GPR net appropriations, Blumenfeld wrote.

What’s more, Blumenfeld wrote, after 30 consecutive years of running a deficit, the state has now had four consecutive years with a Generally Accepted Accounting Principles surplus, including a $6.7 billion surplus at the end of the 2022-23 fiscal year.

“Our steadfast financial management has continued to pay dividends in multiple ways,” she wrote. “In August 2021, the state received upgrades from two rating agencies, with one rating upgraded to a AAA level, which is Wisconsin’s first AAA rating since 1982. These upgrades, which have been maintained for the past three plus years, reflected rating agencies’ recognition of significantly improved reserves, elimination of the negative fund balance (on a GAAP basis), and strong fiscal oversight.”

Blumenfeld said one of the administration’s focuses has been debt management, and as a result the amount of the state’s long-term obligations has been reduced by an average of $433 million per year over the past six years. 

“In addition, the amount of state transportation revenue bonds has been reduced by $408 million since the end of calendar year 2018,” she wrote. “Overall, the state’s GPR debt service as a percentage of tax revenues in the 2024-25 fiscal year is estimated to be 2.1 percent, which is down from 3.4 percent at the end of the 2017-18 fiscal year.”

Over the past six years, Blumenfeld continued, numerous debt refinancing transactions were completed that provided debt service savings for all borrowing programs of about $558 million.

“Finally, we have reduced the state’s overall outstanding debt by $2.6 billion from roughly $13.1 billion in calendar year 2018 to $10.5 billion in calendar year 2024,” she wrote. “We will keep doing what is needed to build upon our accomplishments to move forward as we have done for the past nearly six years.”

Wisconsin Economic Outlook

Blumenfeld included in the report an assessment of the current and projected economic outlook for the state.

“Following the economic crisis caused by the Covid-19 global pandemic and the swift recovery in its aftermath, Wisconsin’s economy has followed the national economic trend of strong and steady employment growth amidst inflation falling from its elevated levels in 2021 and 2022,” she wrote. “Shocks in global energy and food commodity markets related to Russia’s invasion of Ukraine in 2022 have moderated and the monetary policy tightening cycle initiated by the Federal Reserve in 2022 has given way to a gradual path of short-term rate reductions.”

For 2024, Blumenfeld observed,  the S&P Global forecast projects that real GDP will rise by 2.7 percent, following a similar 2.9 percent growth rate in 2023 and 2.5 percent growth rate in 2022. 

“In the following three years, S&P Global projects a modest rate of growth of 2 percent in 2025, 2.1 percent in 2026, and 1.8 percent in 2027,” she wrote. “Personal income is projected to follow a similar trend in nominal terms, with growth of 4.9 percent, 5 percent, and 4.8 percent in 2025, 2026, and 2027, respectively. These growth rates reflect a slowing trend compared to the nearly 6 percent growth rates in 2022 and 2023 resulting in part from higher rates of inflation.”

Employment at the national level has grown strongly during the recovery from the Covid-19 global pandemic and the continued expansion since then, Blumenfeld wrote, and she said Wisconsin’s employment trends have moved in the same direction as the national trends, with growth in non-farm payrolls since the trough in employment in April 2020 nationally at 22.0 percent while Wisconsin employment has grown 17.7 percent through September 2024.

“Wisconsin’s slower underlying demographic growth, especially in the working age population, has become a constraint in matching national employment growth rates,” she wrote. “Wisconsin’s unemployment rate declined to a record low of 2.6 percent in March 2023 and has stayed close to pre-pandemic lows in recent months, with unemployment at 2.9 percent in September 2024 compared to 4.1 percent nationally.”

In addition, Blumenfeld noted, the Department of Workforce Development announced a new state record for total employment last week, which marks the sixth consecutive monthly record for state employment and highlights the unprecedented number of workers currently participating in Wisconsin’s economy. 

“It is expected that Wisconsin employment growth and unemployment rates will follow national trends in a similar relationship to the past few years,” she wrote.

Blumenfeld cautioned that there were risks to the estimates, one being a high degree of uncertainty about the trajectory of inflation and the accompanying easing of monetary policy.

“S&P Global’s national economic forecast includes a projection for inflation that shows the rate of growth in consumer prices easing from 2.9 percent in 2024 to 2.1 percent in 2025 and 2.4 percent in each of 2026 and 2027,” she wrote. “Easing inflation allows the annual average federal funds rate to decline from 5.15 percent in 2024 to 3.79 percent in 2025 and 2.63 percent in 2026. Improvements in the cost of credit are critical to a steady rate of economic growth during the next two years.”

But should inflation prove more resilient than expected, the Federal Reserve could pursue a more restrictive monetary policy, thereby reducing demand for credit and putting pressure on lending institutions and, consequently, the broader economy, Blumenfeld wrote.

“The second major risk to the forecast, according to S&P Global, is significant policy uncertainty at the federal level on fiscal policy, trade, and immigration,” she wrote. 

Among such policy factors are the looming expiration of the individual income tax provisions of the Tax Cuts and Jobs Act of 2017 at the end of 2025, federal deficits, and trade and immigration policy.

Richard Moore is the author of “Dark State” and may be reached at richardd3d.substack.com.