Wisconsin's Budget Deficit: Size, Causes, Remedies, and Consequences

Wisconsin's lawmakers increased spending and cut taxes during the 1990s. Then, in January of 2001, they faced an estimated $2.4 billion budget gap or deficit for the FY 2001–2003 biennium. They cut spending and generated additional revenue by borrowing against future tobacco settlement income. Still, by January of 2002, the estimated deficit had grown by an additional $1.3 billion, and more cutting and borrowing took place. Despite these actions, a $3.5 billion deficit was projected for FY 2003–2005. In this study, the causes of the deficit, the "remedies" selected, and their effects are examined. "Lessons" highlighted by Wisconsin's experience include the risks associated with nonincremental policy making, the high costs of excessive political partisanship, and the corrosive effects of "fiscal brinksmanship."