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May 4, 2020

How does the state deal with a budget shortfall?

Article VIII, Section 5 of the Wisconsin Constitution requires that the Legislature levy a sufficient tax to provide for all state expenditures appropriated. The Legislature currently fulfills that requirement by enacting a budget every two years that includes revenues and expenditures that are in balance.

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The Department of Revenue and the Legislative Fiscal Bureau periodically evaluate the viability of the enacted budget by monitoring state revenue intake and economic projections. In the event that projections show that revenues will fail to be sufficient to fund appropriations, several actions may be taken.

The Department of Administration may allow or direct state agencies to adjust their spending under the authority granted under Wisconsin Statute section 16.50. If the projected revenues show that the State’s appropriations will exceed revenues by more than .5%, the governor must propose legislation to address the situation, calling the Legislature into special session if necessary. The Legislature may then enact budget adjustment legislation.

The Joint Committee on Finance is also authorized to adjust most state appropriations under Wisconsin Statutes section 13.101. Each agency must be given the opportunity to offer a response to the proposed adjustment.

In practice, state agencies have dealt with revenue shortfalls in recent decades through hiring freezes, travel restrictions, procurement restrictions, and unpaid leave and furloughs for state employees.

For more information read State General Fund Balanced Budget Requirements, Legislative Fiscal Bureau Informational Paper #74.

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