On many levels, the new state budget is a bust for businesses

By Chris Korjenek, executive director of NAIOP Wisconsin
and Mark Spaeth, Schenck Business Solutions

While Wisconsin’s unemployment rate hovers near 10 percent, the new budget bill authorizes, for the current biennium, a record $62 billion in spending (6.2 percent higher than the previous budget), the addition of more than 200 full-time state government jobs and more than $3.5 billion in additional income taxes, fees and property taxes.

We believe these measures will make Wisconsin less attractive to investment capital, which in turn stifles development and job creation.

Developers, owners and investors looking to build plants or factories in Wisconsin will discover that the new budget bill erases — for state tax purposes — a deduction for domestic production activities (a federal incentive for the manufacture, production or growth of tangible personal property, construction of real property and performance of engineering or architectural services related to construction projects).

Similarly, this budget expands prevailing wage requirements. Under the bill, prevailing wages must be paid for virtually all public improvements projects (even if entirely funded and constructed by a private developer) and for any private development project receiving $1 million or more in direct financial assistance. This measure will drive up labor costs for lower skilled tasks and increase costs of all development projects.

Other budget bill items that diminish incentives to expand businesses or invest in new development include:

• A new income tax bracket of 7.75 percent that applies to incomes over $300,000 if married filing jointly, $225,000 if single, and $150,000 if married filing separately, for tax years beginning after 2008. This is 1 percentage point higher than the previous rate, putting Wisconsin 11th highest in the country.

• A significant increase in the capital gains tax, reducing the allowable exemption from 60 percent to 30 percent of the amount of the gain recognized, effective retroactively to tax years beginning after 2008. As a result, the state capital gains tax has effectively increased 75 percent to 100 percent, depending upon the investor’s tax bracket.

• New monthly taxes on telephones (land lines, wireless and Internet), which will apply per connection. New taxes assessed to phone companies will also be passed through to consumers and businesses.

• Additional public utility assessments, which will result in higher charges on monthly bills for commercial and residential energy users.

To be sure, the current economy has taken its toll on tax revenues; however, with or without a sagging economy, Wisconsin still holds the dubious distinction of a debtor state.

State government’s ability to spend more than it takes in has been abetted over the years by use of non-recurring revenue sources (e.g. the settlement for tobacco litigation), diversion of money from so called “segregated” funds (e.g. transportation funds) to other funds, and the issuance of debt to make up for the diversions.

Just over $1.1 billion was transferred out of the transportation fund alone in the last five fiscal years. Current cash accounting methods allow a budget to appear balanced, when on an accrual basis, the state had $8.73 billion in debt before this budget, in which debt now increases to more than $12 billion. Even prior to this budget enactment, Wisconsin was among the top 15 states in debt per capita.

Instead of continuing to discourage business expansion and job creation, we urge the state to start promoting fiscal health and economic growth by:

• Reversing antidevelopment and antibusiness legislation.

• Restoring meaningful tax incentives for growth (the administration’s touting of its $20 million worth of payroll tax credits for small businesses does not qualify as “meaningful” in a $62 billion budget).

• Refraining from budgeting for recurring expenses through use of one-time revenues or debt issuance.

• Finally, rejecting accounting and legislative gimmicks that permit spending to exceed revenues and imperil Wisconsin’s future. n

NAIOP, the Commercial Real Estate Development Association, is an organization for developers, owners and related professionals in office, industrial and mixed-use real estate. The association provides industry networking and education opportunities, advocates for effective legislation on behalf of members, and advances responsible, sustainable development that creates jobs and benefits the communities in which members work and live.
 

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