On February 16, 2021, Governor Tony Evers unveiled his 2021-23 biennial budget proposal to a joint session of the Legislature. The Governor’s budget proposal recommended $91 billion in operating expenditures over the two-year budget cycle, which represents a 9.7 percent ($4.043 billion) increase over the prior two-year budget.

The majority of the increased expenditures proposed by the Governor are devoted to K-12 school aids, which he stated will result in the fulfillment of the state’s promise to provide two-thirds funding for public school expenditures, which began under Governor Tommy Thompson.

Other notable provisions in the Governor’s proposed budget include increased aids to businesses and local governments to assist in the state’s economic recovery from the COVID-19 pandemic, as well as other general economic development investments. A list of some of those proposals follow.

COVID-19 Relief

The Governor recommended the creation of a $200 million biennial appropriation dedicated to assisting small businesses affected by the pandemic with retaining and rehiring employees.

In addition, the Governor recommended increasing the Wisconsin Economic Development Corporation’s (WEDC) annual block grant by $10 million in each year of the biennium to provide additional resources to WEDC across its range of programs to assist businesses, communities, and organizations.

The Governor further recommended an increase of $10 million over the biennium for assistance dedicated to underserved communities and their businesses, including minority and women-owned businesses.

Finally, the Governor recommended providing a one-time grant of $8 million to WEDC to be awarded to organizations focused on local or regional economic development.

Venture & Start-up Funding for Entrepreneurs

The Governor recommended numerous proposals, which he says will enhance Wisconsin’s long-term economic growth prospects in the years ahead. The largest of these proposals is the creation of a $100 million venture capital fund of funds under the direction of WEDC. This fund of funds investment program will invest in venture capital funds that commit to invest the state’s funds in emerging Wisconsin companies alongside outside private capital to leverage other sources of financing. The fund of funds proposal will require that 20 percent of all investments go to underserved communities, including minority and women-owned businesses as well as parts of the state that do not traditionally receive venture capital financing, including rural areas.

The Governor also recommended removing the requirement that the current Badger Fund of Funds program, currently overseen by the Department of Administration, repay its initial investment to the state.

Research & Development Tax Credit Incentives

The Governor recommended increasing the refundable share of the research tax credit from 10 percent under current law to 20 percent beginning in tax year 2021.

In addition, the Governor recommended creating a new earnings category under the Business Development Tax Credit for renewable energy and energy efficiency projects for up to 25 percent of the costs of real or personal property investments undertaken by award recipients.

Business Development Tax Credit & Enterprise Zone Jobs Tax Credits

The Governor recommended increasing the wage thresholds for businesses benefitting from the Business Development Tax Credit and the Enterprise Zone Jobs Tax Credit, which have remained unchanged since 2007.

Under the Governor’s proposal, the minimum qualifying level for wages under the Enterprise Zone Jobs Tax Credit would be increased from $30,000 to $37,000 for tier II counties and municipalities and from $22,620 to $27,900 for tier I counties and municipalities. The maximum wage level eligible for credit earnings will be raised from $100,000 to $123,000. These changes will also apply to the Business Development Tax Credit.

The Governor proposed that these higher thresholds apply to awards first certified in 2022, and that the income thresholds be indexed annually thereafter.

Private-sector Retirement Savings Accounts

The Governor proposed the creation of a Small Business Retirement Savings Board that will establish and oversee a small business retirement savings program for privately employed individuals who are not currently eligible for an employer-sponsored retirement plan. The board will be attached to the Department of Financial Institutions and would be authorized to contract with a vendor to administer the retirement program. The program will target businesses with 50 or fewer employees.

After choosing to participate in the program, a participating employer would be required to notify each of its employees of their right to opt out of the plan. Payroll deductions for participating employees will be remitted to the program administrator and, unless otherwise directed by an employee, begin at 5 percent of an employee’s gross wages, with this percentage increasing 1 percentage point each year until a maximum rate of 10 percent is reached.

Labor Union Rights, Employee Benefits & Minimum Wage

The Governor’s budget recommended new flexibilities for unemployment insurance benefit recipients who have lost jobs due to the COVID-19 pandemic. The Governor proposed increasing the weekly benefit rate, permitting laid-off workers to earn money and still receive benefits, modifying suitable work definitions, and allowing spouses who move as a result of a spouse’s military deployment to receive benefits.

The Governor further recommended modifying current law to allow state and local front-line workers to negotiate together. Front-line workers are defined as employees whose jobs entail regular interaction with members of the public or with large populations of people, or directly involve the maintenance of public works. The Governor also proposed to require public employers to meet or consult with employees at least quarterly or upon a change in policies affecting wages, hours, and working conditions..

The Governor also recommended the repeal of the prohibition on contracts between labor unions and employers that specify the employer may only hire unionized workers, and repealing certain other prohibitions that limit worker freedom.

The Governor’s proposed budget would also require employers conducting projects of public works, both state and local, to pay workers the hourly wage and benefits paid to the majority of workers in the project’s area, commonly known as prevailing wage.

In addition, the Governor recommended an increase to the state minimum wage, as well as the creation of a task force to study and recommend options for achieving a statewide minimum wage of $15 per hour.

Finally, the Governor’s proposed budget also included modifications to benefits under the federal and Family and Medical Leave Act laws (FMLA) in response to the COVID-19 pandemic. The Governor recommended that, for state-required FMLA purposes:

  1. smaller employers (those with at least 25 employees, as opposed to 50 under current law) be required to offer FMLA;
  2. leave may be taken to care for a grandparent, grandchild, or sibling with a serious health condition;
  3.  a “qualifying exigency” includes the deployment of a spouse or child, or an unexpected school or child care facility closure;
  4. FMLA may be used for medical quarantine;
  5. employees only need to work 680 hours for an employer to qualify for FMLA, instead of 1,000 as under current law; and
  6. the FMLA complaint statute of limitations is extended from 30 to 300 days.

Unemployment Insurance & Workforce Development

The Governor’s budget proposed numerous changes to the state’s unemployment insurance law, and provided certain investments, which he says are designed to help the state’s economy recover from the COVID-19 pandemic.

Specifically, the Governor’s proposed budget:

  • Provides $79.5 million to modernize the state’s unemployment insurance claims program, which has been in use for 50 years.
  • Provides $15 million in fiscal year 2022-23 to address costs associated with the administrative workload increase resulting from the COVID-19 pandemic.
  • Provides $8 million for grants to local workforce development boards, which can be subgranted to local businesses or organizations for pandemic relief.
  • Provides $10 million in fiscal year 2021-22 within the framework of Wisconsin Fast Forward to support training for individuals, businesses, and organizations affected by the pandemic.

The Governor also proposed changes to workforce assistance programs, including:

  • Providing $2,226,700 in fiscal year 2021-22 and $7,483,000 in fiscal year 2022-23, as well as related position authority, to create a program in the Department of Workforce
    Development that is focused on helping individuals overcome barriers to employment.
  • Providing $5 million to the UW System to work collaboratively with the Department of Corrections in developing programming to help incarcerated individuals achieve postsecondary credentials or degrees.
  • Providing $200,000 in fiscal year 2021-22 for grants to local workforce development
    boards to conduct health care career events and courses.
  • Providing $500,000 in each year to support grants to train individuals in green jobs, which he defines as those that benefit the environment or conserve natural resources.
  • Providing $250,000 in each year to expand youth apprenticeship opportunities, which expose high school students to the employment prospects available in the trades.

Tax Law Changes

The Governor proposes approximately $450 million in tax relief for low- and moderate-income residents, especially those with children or those who provide care to family members. The Governor’s budget also proposes more than $90 million in targeted tax relief to businesses to encourage investment and hiring. The Governor’s budget also proposes to limit special tax benefits for a small group of higher income earners.

First, the Governor recommends adopting a nonrefundable credit for family caregivers that will provide $100.4 million in tax relief in fiscal year 2021-22 and $102.5 million in fiscal year 2022-23. The credit is equal to 50 percent of the qualifying expenses incurred by those providing care or support to adult family members requiring assistance with one or more daily activities, limited to $500 in a tax year. The credit will be available to married-joint filers with incomes up to $150,000, subject to a phase-out after that point with the credit being unavailable for those with incomes above $170,000. For single, married-separate, and head of household filers, the credit will be available for those with incomes up to $75,000, subject to a phase-out after that point with the credit being unavailable to those filers with incomes above $85,000.

Qualifying expenses under the credit are those amounts incurred during a taxable year related to
modifications to a dwelling for the care or support of a qualified family member, purchase or lease of assistance equipment, and acquisition of goods or services or support to assist in caring for a qualified family member.

Agricultural & Manufacturing Tax Credit Changes

Under the Governor’s proposed budget, the agricultural portion of the credit will remain as it is under the current law. However, the Governor recommended limiting, not eliminating, the manufacturing portion of the credit to only apply to the first $300,000 in qualified production activities income for each firm qualifying for the credit.

Capital Gains

The Governor’s budget proposal recommended limiting the current 30 percent long-term capital gains exclusion to those taxpayers with adjusted gross incomes below $400,000 for individuals and $533,000 for married-joint filers.

Conformity With Federal Tax Laws

The Governor’s proposal would adopt most of the major remaining provisions that have not yet been adopted under the federal Tax Cuts & Jobs Act, except for accelerated depreciation provisions. As part of federal conformity efforts, the Governor also recommends repealing the net operating loss carryback provision under current law because the equivalent provision was repealed under the Tax Cuts & Jobs Act.

Broadband Expansion

The Governor’s proposed budget recommended providing $76.8 million in fiscal year 2021-22 and $74.9 million in fiscal year 2022-23 for the Broadband Expansion Grant program through the Public Service Commission. This program provides grants to profit or nonprofit organizations and/or municipalities to help deliver broadband access to those parts of the state that are most in need of assistance.

Transportation Aids

The Governor’s budget proposal recommended bonding for $162 million for major highway projects, $40 million for the I-94 East/West project, $20 million for Design Build, $15.3 million for the Harbor Assistance Program, $20 million for the Freight Rail Preservation Program, $15 million for the Pilot Program for Critical Infrastructure, and $5 million for electric vehicle charging infrastructure. The total bonding authorized is $555.8 million.

The proposed budget also includes money to build out Wisconsin’s electric vehicle charging network. In addition, a new program targeting bridges and culverts in the state that are most at risk of failure from flooding as climate change continues to wreak havoc with more severe storm water events is also proposed.
Other Notable Provisions

In addition to the programs described above, the Governor proposed sweeping changes to the child care tax credit program; increased financial support to the UW System (including a tuition freeze); the expansion of BadgerCare and Medicaid; modifications to veterans’ service and affordable housing programs; juvenile and adult justice reform initiatives; legalizing recreational marijuana use (and imposing an excise tax on its sale); clean energy initiatives; and, water quality regulatory modifications.

The Budget in Brief offers a more information and a complete summary of the Governor’s budget, and can be viewed here.

Next Steps

The Governor’s proposal is just that: a proposal. The next stop for the Governor’s proposed budget is the Legislature’s Joint Finance Committee (the Committee), which will evaluate whether to include, modify, or eliminate some or all of the Governor’s proposed changes to state law and finances. In addition, the Committee may include additional provisions not included in the Governor’s budget. The Committee is controlled entirely by Republicans and, therefore, it is likely that many of the Governor’s proposals will not be adopted or that they will be substantially modified in the budget adopted by the Legislature.

The Committee typically holds public hearings around the state on the Governor’s proposed budget; however, in light of the COVID-19 pandemic, it is unclear how the Committee’s Co-Chairs will handle these hearings. The Committee typically completes its review of the Governor’s proposed budget in late-May and the Legislature is required to adopt a budget prior to June 30, the end of the state’s fiscal year. Although there are no real adverse consequences for failing to adopt a budget by the June 30 deadline, the Legislature has sought to adhere to that deadline for adoption of a new biennial budget in recent years.

The common rule of thumb is that 99 percent of the Governor’s budget is adopted. However, this budget contains numerous sweeping changes to state programs, some of which will be welcomed by the Republican-controlled Legislature, while others will be rejected outright. In short, the Governor’s budget is merely the starting point of a long process that will undoubtedly see numerous twists and turns as it moves towards adoption by the Legislature and final approval by the Governor.