Wisconsin's general fund hit $6.7 billion and other takeaways from policy forum report

MADISON — The state's financial condition is the strongest on record, according to a new report from the nonpartisan Wisconsin Policy Forum.

The analysis, which comes four years after the arrival of the COVID-19 pandemic, noted substantial reserves and relatively low debt.

"This newfound strength better positions the state to take advantage of future opportunities and weather potential storms," the report found.

However, the report also identified areas of concern, including the state's transportation debt payments and its unemployment fund balance, which "makes Wisconsin less prepared than most states to weather a major recession."

Here's a breakdown of what the analysis found:

Wisconsin's general fund balance hit $6.7 billion

The state’s general fund balance — its largest source of reserves — hit a record high of $6.7 billion by June 2023. That was a 42% increase over the previous year.

The Policy Forum previously found that in 2020, the general fund had closed the fiscal year with a small positive balance for the first time on record — but the news came as as the state grappled with the onset of the COVID-19 pandemic and faced a recession. The report attributes the strength of the general fund to federal aid, a resilient economy and the development of vaccines to mitigate the severity of the pandemic.

Wisconsin is well-positioned to pay short-term bills

As of June 2023, the report found, Wisconsin had nearly 2.5 times more cash and liquid assets than short-term financial obligations — the highest ratio on record since 2002.

Debt levels are at lowest levels in 25 years

As of December 2023, the report found, the state had $11.14 billion in outstanding debt — a 2.6% reduction from the previous year before adjusting for inflation. With adjustment for inflation, it's the lowest debt level Wisconsin has had in at least 25 years.

The share of general purpose revenue (GPR) spending dedicated to debt payments fell below 2.7% in both 2021 and 2022 — the smallest share since 1984, with the exception of years in which the state skipped payments due to budget challenges. As a general rule, the state aims to keep those payments below 4% of total spending.

Transportation debt is an ongoing concern

The percentage of state transportation fund revenues directed to paying off debt rose from 7% in 2002 to 18.9% in 2019. That share is projected to fall to 16.2% by 2025, thanks in part to fee increases and borrowing decreases, but transportation debt remains an issue.

"Going forward, transportation debt will likely remain an ongoing concern for Wisconsin unless lawmakers and Gov. Tony Evers identify additional revenues for the transportation fund, make the general fund transfers permanent, or sharply scale back road projects. None of these options are politically appealing, making this an issue to watch in the next state budget," the report noted.

Wisconsin unemployment fund ranks 30th

The balance of the state's unemployment insurance fund dropped by $871.5 million in June 2021 as the state dealt with the COVID-19 pandemic. Most of those losses were regained, but the fund ranks 30th among the country's 50 states in terms of a key factor predicting readiness for a recession: whether state can cover one year of benefit payments at a rate equal to the average of the three highest claims years within the past 20 years.

By that measure, the state could cover unemployment assistance for about 7 1/2 months in the event of a significant recession. Because that falls short of a federal recommendation, the state would not qualify for interest-free federal loans to support those payments should the fund dry up. To reach that threshold, the balance would need to increase by about $940 million.

Current conditions are likely a high point

"While the state’s strong financial performance as of the end of 2023 is notable and encouraging, several factors suggest that it may turn out to represent a high point that will not be repeated in the near future," the report found.

Federal pandemic relief funds are set to run out this year, and economic growth is slowing.

Additionally, the 2023-25 state budget drew on a significant surplus to decrease property and income taxes, increase funding for schools, local government and transportation, and boost pay for state employees. The state's general fund is projected to fall from about $7.1 billion in June 2023 to about $3.8 billion in June of this year.

"The progress the state has made over the past decade is the result of a strong economy and federal pandemic assistance as well as many decisions by state elected officials of both parties, including some that were painful. This newfound strength better positions the state to take advantage of future opportunities and weather potential storms. Holding onto these hard-won gains, however, will require both vigilance and prudence from state leaders as well as some measure of good fortune," the report concluded.

Jessie Opoien ca be reached at jessie.opoien@jrn.com.