DOYLE FACES HARD CHOICES AS BUDGET WORK BEGINS

BYLINE: By David Callender The Capital Times

Gov. Jim Doyle will head into his next two-year state budget with a gap of $1.6 billion between projected tax revenues and requests from state agencies, a new report shows.

The $1.6 billion gap would exist only if Doyle approves all of the agency requests -- something the governor is unlikely to do, aides quickly noted after the Department of Administration report was released on Monday.

But the report highlights the competing demands and difficult choices Doyle will face as he begins work on his third budget, which he will present to lawmakers in February.

During his re-election campaign this fall, Doyle vowed to introduce a budget without any increases in state income, sales or corporate income taxes.

In a statement accompanying the report, Administration Secretary Steve Bablitch said Doyle "has shown over the course of two consecutive budgets that Wisconsin can fund its priorities, provide targeted tax relief, and create an environment for economic growth without raising taxes. This will continue to be our approach for the 2007-2009 budget."

State budget director Dave Schmiedicke said the report projects $1.4 billion in new general tax revenue growth over the next two years, or roughly 3.6 percent growth in fiscal year 2007 and 4 percent growth in 2008.

That revenue growth is slower than the 5 percent the state budget office had projected earlier this year. At that time, the office projected a $350 million surplus, but Schmiedicke said those figures reflected only the state's continuing budget commitments and did not include agency requests.

The lower revenue figure reflects that the state's economy "is slowing modestly in response to changes in the housing sector, higher interest rates, and higher energy prices," the report said.

State agencies submitted about $2.1 billion more in requests for increased spending, he said.

Those increases include money to pay for rising caseloads for the $4 billion-a-year Medicaid program, which provides health care for low-income elderly and disabled; $680 million in new money for the state to continue paying two-thirds of school costs statewide and maintaining current levels of support for other school programs; and $250 million to continue current operations and cope with population growth and new mandates at state prisons, Schmiedicke said.

In addition, about $600 million in tax cuts approved in this year's budget -- including a tax break for seniors citizens' Social Security benefits and a major tax break for Wisconsin companies that do business in more than one state -- will take effect over the next two years.

As a result of those tax cuts, Bablitch wrote, "the state will not be able to simply grow its way out of budget shortfalls as it did in the 1990s. The state will need to continue to exercise fiscal responsibility and strive for efficient government."

The report immediately touched off Republican complaints that Doyle had minimized the scope of the potential budget deficit during this fall's campaign for governor.

"After months of rhetoric from Governor Doyle's re-election campaign ignoring Legislative Fiscal Bureau data and claiming that he balanced the budget, Governor Doyle's DOA today admits that Wisconsin is facing a $1.6 billion budget hole," Senate Minority Leader Scott Fitzgerald, R-Juneau, said in a statement.

Assembly Speaker Mike Huebsch, R-West Salem, said in a statement that the state "continues to face a deficit because we spend too much as a state," but that majority Republicans in the Assembly "are willing to work with Governor Doyle to fix the deficit without raising taxes."

Huebsch stressed that a tax increase to help close the deficit "is not an option."

E-mail: dcallender@madison.com