Members of LeaderEthics-Wisconsin receive a monthly copy of The Ethics Report. Each edition will include summaries of research as well as articles about ethical leadership in practice...frequently awarding a "green light" or "red flag" rating. Each month, we include a featured article from the most recent edition of The Ethics Report.

Featured Article

Two States, Two Surpluses

March 2022

Minnesota and Wisconsin have both projected a significant budget surplus for the current biennium. This is where the two states differ.

Minnesota is wrestling with options for handing a significant budget surplus. What was expected in November 2021 to be a $7.7 billion General Fund surplus is now up to $9.25 billion for the current biennium, according to an updated budget estimate released by Minnesota Management and Budget on February 28th. Incomes, consumer spending and corporate profits are all up while spending is slightly lower in the areas of E-12 education and health and human services. While department officials emphasized that the changes are mostly one-time — they’re strictly for the current biennium — the state remains in the black in planning estimates for the 2024-25 biennium. Commissioner Jim Schowalter recommends caution because of uncertainty due to inflation and geopolitical conflict.

There have been a number of projected proposals for the utilization of the surplus funds. DFL Gov. Tim Walz initially listed a range of possible uses, including paid leave, housing and lowering the costs of energy and health care. Senate Republican Leader Jeremy Miller said tax cuts for individuals and businesses will be his caucus' "top priority." Statewide teachers union Education Minnesota, called on lawmakers to increase school funding. A number of other proposals have surfaced.

The president and CEO of the Minnesota Chamber called backfilling the Unemployment Insurance Trust Fund deficit a huge priority to avoid tax increases on business. The Minnesota Senate passed a plan too use $2.7 billion to replenish the unemployment fund. As reported in the Mankato Free Press, Senate Republicans and Gov. Tim Walz have similar proposals to use $2.7 billion of the state’s surplus and federal COVID aid to pay off Minnesota’s debt and replenish the unemployment fund. House DFL members have put forth a proposal to repay the state’s $1.2 billion debt, which will remedy the immediate shortfall, but fail to fully replenish the fund. DFL Representative Gene Pelowski, of Winona, is taking a position that is counter to the House DFL caucus by introducing a bill calling for the full $2.7 billion. He attended a joint press conference with Republicans to express support for full funding, a position that Governor Walz, a Democrat, essentially supports.

Wisconsin also projects a significant budget surplus. The nonpartisan Legislative Fiscal Bureau reported that the two-year budget's general fund was now projected to end with a balance of more than $3.8 billion. While not as large as the surplus in Minnesota, it is still a hefty sum. As reported by Wisconsin Public Radio, that amounts to nearly $2.9 billion more than the original estimate from last year. Fiscal Bureau Director Bob Lang told lawmakers $2.5 billion of that increase was due to higher-than-expected revenue from Wisconsin's income, sales and corporate taxes.

Governor Tony Evers called a special session, asking the state legislature to approve his plan to use some of the surplus funds to send taxpayers $150 refunds. On March 8th, Senate President Chris Kapenga banged the gavel to start the special session and then immediately banged it again to end it. The Republican-led Senate and Assembly technically held the special session, but no action was taken. There is no further legislative action expected on the budget surplus for the remainder of 2022.

So if you look at the two states, you can see a dramatic difference in approach. Minnesota is wrestling with the options on the table, ranging from tax cuts to increased funding for public services. Not surprisingly, the process will not be without challenges. The special interests are lining up with requests. For example, the Minneapolis teachers went on strike fully recognizing some of the surplus dollars can be directed to education. At the same time, It is encouraging to the seeds of bipartisanship in addressing the shortage in the Unemployment Insurance Trust Fund. Representative Gene Pelowski has earned a green light for his willingness to part with his caucus in order to work with the democratic Governor and republican State Senate.

Meanwhile, in Wisconsin, the dynamics are less complicated legislatively. The Governor’s proposed “across the board” appears to be aimed at gaining favor from voters in advance of the November 2022 election. Of course, a similar action was taken by then Governor Walker in 2018 as reported by Wisconsin Public Radio. The 2018 action, approved by the Republican legislature and signed by the Governor, provided a $100 child tax credit plus a sales tax holiday...enacted in late summer of an election year.

This time, the 2022 legislature adjourned for the year in March without considering action on any unmet needs in Wisconsin. On one hand, it may be prudent to wait until 2023 for considering action, given the infusion of federal “COVID-19 relief dollars”. On the other hand, given the impact of inflation and rising gas prices, a bipartisan effort to provide tax relief now would have been a meaningful way to serve constituents throughout the state. Absent hyper-partisanship, this would have been the right thing to do. We believe, the Wisconsin Governor and legislature have earned a red flag for failing to consider a joint action. Neither party took serious steps to identify pressing needs within the state where the surplus could have helped. By appearances, spending the surplus funds in an election year could have benefited and/or disadvantaged one or the other the parties. Given that, it seems that the highest priority for the leaders in both parties was not responding to the needs of Wisconsin. Rather it was positioning for the upcoming election in November.

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