State Budget Overview
February 17, 2014

As you likely know, Governor Scott Walker introduced his State Budget Proposal on February 3. This proposal consists of a 91-page "Budget In Brief," a 638-page "Executive Budget" and the actual 1,839-page State Budget Bill language in AB 21/SB 21, formally introduced in both houses of the state legislature. WH&LA has taken on the privilege of reading or scanning all of these documents to try to ascertain what issues important to the lodging industry are addressed that may or may not have been covered by the media. Many of the issues reported by the media are certainly of interest personally to residents of the state, but we were looking for those of interest to your business. The following is not represented as a list of all issues that could be of interest to your property/business, but is instead is a summary of what will likely be of interest to multiple lodging owners/operators.
Before we get to the overview of issues, the process now involves the Joint Finance Committee reviewing all the documents, along with some analysis documents that the Legislative Fiscal Bureau, a non-partisan fiscal analysis bureau, prepares for legislators to help them to more quickly understand issues. They are developing the papers now, which will likely be released at the start of March. Then the Committee invites the head of each state agency to come in to speak to them about their budgets. This is followed by 4-5 Public Hearings on the Budget, which will be scheduled around the state to allow all residents the opportunity to address the Committee briefly on the budget, should they wish to do so. After the Hearings, the Joint Finance Committee will deliberate amongst themselves and release their Budget Proposal based on the Governor's initial proposal. Both houses in the state legislature will review this document, will make their preferred changes and convene a conference committee with representatives from both houses to gain a consensus on the final Budget Proposal that goes to the Governor for his consideration in vetoing or approving the components, and finally signing the Budget into law before the next fiscal year begins July 1, 2015.

WH&LA will provide periodic updates through this process, including sharing information on the Public Hearings, once they are released, so that members can speak or send written testimony on issues they wish to let the Joint Finance Committee know about. In addition, WH&LA has scheduled our Action Day on April 22 at the Edgewater Hotel near the Capitol, where we will bring in key legislators and provide issue updates along with scheduling meetings for you with legislators at the Capitol - it's a great experience, and with lunch, issue materials, speakers, and appointments, the registration fee is only $30.

STATE BUDGET OVERVIEW

Tourism
  • $475,000 in earmarks will be removed from the Department's statutory obligations; however, the funding for it was also removed from the Department's total budget.
  • Marketing functions for all state agencies are moved into a new "Office of Marketing" within the Department of Tourism for efficiencies. This eliminates 19 positions at other agencies and adds funding for eight transferring staff from four agencies; however, while this funding is added to the Tourism budget, the transferred staff's responsibilities are not Tourism marketing. In addition, the Department of Tourism has the added task of oversight for marketing for other agencies, with only eight of 27 current positions coming on board to do the marketing tasks for the other agencies.
  • Funding and administration of the Kickapoo Valley Reserve was transferred from the Department of Tourism to the DNR.
  • With all of the shifting of funding, it appears that the net impact on the Department of Tourism's budget for tourism promotion will be down just over $500,000 for both years.
  • The WH&LA has a meeting tomorrow with the Department, and should our analysis be incorrect in any way, we will advise members in another Capitol Insider later this week.
Transportation
  • Current requirements to include bike and pedestrian facilities within new highway building projects would be eliminated.
  • State gas tax remains at 32.9 cents/gallon - no increase.
  • $1.3 billion is proposed in borrowing to fund transportation needs, rather than the multiple tax increases the DOT Secretary originally proposed. This is about 30% higher than the $991 million in borrowing for transportation in the current budget. Numerous industries are concerned about the reliance upon borrowing, when they are seeking stability in the funding source; however, others are pleased that there is a strong investment overall in transportation without increasing taxes. It is projected that Joint Finance may make some changes to the funding proposal in their budget version.
  • Transportation funding will ensure the Zoo Interchange project is on schedule for 2018 completion, the Stillwater and Hoan Bridge projects will be completed, $836 million will keep major highway projects on schedule, funding for local Transportation Economic Assistance Grants will be increased, increased funding for operating aids for state-owned bridges maintained by local governments, funding for operational & maintenance costs for the passenger concourse at the Milwaukee Intermodal Station, and more.
  • A $2 million increase for the Transportation Economic Assistance Grant Program, grants provided to local governments and private businesses to improve targeted infrastructure that either attracts or retains business to an area, is included.
  • DOT will be authorized to sell ads at state-owned rail stations, with the revenue going to the Transportation Fund.
  • Funding is eliminated for "Community Sensitive Designs" on highway projects; however, local governments can fund these upgraded designs if they wish.
  • Funding for the widening of I-39/90 between Madison and Illinois is included
Natural Resources
  • As a considerable change to how decisions are made relating to natural resources in the state, the Natural Resources Board will be converted to an advisory council to the DNR, shifting the rule-making and policymaking powers to the DNR Secretary.
  • Land purchases from the Stewardship Program are put on hold until the level of debt service for land purchases reaches a lower proportion of total costs. The budget includes reallocating $14 million from land acquisition to property development and renovation of fish hatchery facilities.
  • The one-time $1 million funding for the Wisconsin Walleye Initiative, a program for capacity expansion of private fish farms in the last budget, is now discontinued.
  • State Parks user fees are increased by $2 per night for campsites, and $3 per year for the annual state park vehicle entrance fee, which will be designated for the parks and forestry accounts in the conservation fund.
  • The previous sunset for the Ballast Water Fees for boats on Wisconsin waters, set to end at the end of 2015, is removed to allow continuing inspections of ballast water to help protect our waters.
  • $150,000/year is budgeted for operations expenses for additional facilities at multiple state parks, trails, and southern forests.
  • ATV, UTV and snowmobile trail aids were adjusted to reflect current estimates of motor fuel tax transfers.
  • Eliminates $297,000 in program earmarks in the ATV program account.
Economic Development
  • The Historic Rehabilitation Tax Credit budget will have a $10 million cap annually, and the tax credits will be competitively awarded based in part on jobs creation. A penalty is created for recipients who do not achieve their job creation estimates, and the eligibility for pre-1936 non-historic building projects has been eliminated.
  • A $15 million grant is included for the Eau Claire Confluence project, provided there is matching funding of at least that amount retained elsewhere.
  • The state will issue $220 million in bonds, with $20 million to retire the debt on the Bradley Center in Milwaukee, and $200 million for assistance in building the Wisconsin Sports & Entertainment Center in downtown Milwaukee. This will be paid for by incremental increases in state sales tax receipts from NBA athletes practicing and competing in games in Wisconsin (known as the "Jock Tax"). The total construction costs are estimated to exceed $500 million, with the current owners already committing to $250 million. This proposal requires the city of Milwaukee and Milwaukee County to also commit to some funding, in order to have any voice in the project. Recent estimates note that the actual cost of the bonding would exceed $220 million due to interest costs; however, it is not as widely known that by contract the NBA will purchase the Bucks franchise from the current owners should a new arena not be constructed by 2017, and other cities are already expressing an interest in purchasing the team from the NBA. This translates to a loss in state income tax that would easily exceed $100 million just in the first 10 years, and the state would be responsible for retiring the $20 million Bradley Center debt and likely assuming some responsibility for subsidizing operations of the current center without the Bucks as the main tenant to generate operational revenue. While the proposal is controversial, it is important to be aware of both the proposal costs to the state and the cost of not building a new arena also to the state, before determining a position.
  • Create the Forward Wisconsin Development Authority by combining the Wisconsin Economic Development Corporation and the Wisconsin Housing and Economic Development Authority (WHEDA), with the Board consisting of only private sector representatives. Provide $55 million to the Authority to fund a new regional revolving loan program to provide targeted self-sustaining economic development loans across the state.
  • Create the Business Development Tax Credit by combining the existing Jobs Tax Credit and Economic Development Tax Credits for more simple and flexible tax incentives, with a state budget of $10 million.
Workforce Issues
  • Drug screening tests are required for those applying for Unemployment Insurance benefits. Those that pass are eligible, and those that fail are provided with state-paid treatment. Once treatment is completed another test is given, enabling eligibility if passed.
  • A new tiered system defining suitable work for a UI benefit claimant will take into consideration the length of time the claimant has been receiving benefits.
  • Penalties for Unemployment Insurance fraud will be increased.
  • Supplemental benefits from the work injury supplemental benefit fund and from worker's compensation assessments will be eliminated after Jan. 1, 2016, due to ongoing solvency issues.
  • The Wisconsin Fast Forward grant program will be expanded, with eligibility provided to Local Youth Apprenticeship Programs, the Apprenticeship Completion Award Program, and career and technical education incentives for school districts.
Licensing
  • Licensing for lodging (hotels, motels, tourist rooming houses, and bed & breakfasts), pools, and restaurants will shift from the Department of Health Services (DHS) to the Department of Agriculture, Trade, and Consumer Protection (DATCP), with current staff primarily moving intact.
Revenue
  • Over 100 auditing positions will be added to the Department of Revenue (DOR) to "enhance corporate tax collections, sales and use tax collections, and nexus identification activities" for the state. Another 11 positions will also be added to the DOR for their statewide debt collection program assisting both state agencies and local governments in collecting debt owed to them.
  • The definition of "retailer engaged in business in the state" (the nexus concept) will be strengthened to enable the state to collect sales tax revenue from more out of state businesses that have considerable transactions in Wisconsin.
  • A Tax Refund Intercept Program will be implemented to ensure debts owed to the state and federal governments are paid back prior to the release of tax refunds to those eligible.
Miscellaneous
  • Local levy limits are continued for counties, municipalities, and technical colleges. If a referendum is held to exceed the levy limit, the municipality must disclose their debt service and the impact of the added amount levied.
  • The Office of State Employment Relations (OSER), the office responsible for proposing state Per Diem rates for travel, is moving to the Department of Administration.
  • Similar to the shift of the Natural Resources Board into an advisory council, the DATCP Board will also shift to an advisory council, with the DATCP Secretary gaining oversight of rules and policy-making powers.
  • Property assessments will be implemented as a county-based system instead of at the municipal level, to provide better uniformity. All assessments will need to be at 100% of fair market value by 2017.
  • The UW System would have a $300 million budget cut in this cycle, with autonomy authorized to start in July of 2016. This independence from most state oversight would include "procurement," which would include the procurement of lodging and meals for their system employees. This means the UW System could purchase, set rules on lodging procurement, etc. within their own preferences, instead of following state procurement policies and procedures. Lately new conversations have arisen regarding the $1.3 billion remaining in the UW System reserves, which may be partially committed already, but some of which may be available to offset some of the $300 million budget cut. This is a complicated piece of the puzzle that has not yet been completely clarified.
  • An additional $6 million would be available for Broadband Expansion grants to help to provide better connectivity throughout the state.
  • The State Building Commission, with oversight over state building construction projects, would have less oversight as the minimum threshold of cost for projects they review would increase considerably. This means the opportunity for such projects as state-owned lodging construction would be more difficult to spot or monitor.
  • The statutory definition of restaurant is changed from "any building, room or place where meals are prepared or served or sold to transients or the general public, and all places used in connection with it..." to now read "any building, room or place at which the predominant activity is the preparation, service, or sale of meals to transients or the general public including all places used in connection with it...".
  • A reduction of $52,000 for the Northern Great Lakes Heritage Center is included
Again, the above overview does not include every issue or project added, authorized or removed that may be of interest. WH&LA will do our best to keep you advised of components that may be of interest to your property. 

 


Contact: Trisha Pugal
Wisconsin Hotel & Lodging Association
pugal@wisconsinlodging.org
262/782-2851