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Budget Example Analysis

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Budget Example Analysis

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  • March 31, 2011
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Introduction
-In the wake of the dot-com industry’s collapse, the steep stock market drop, the rise of the dollar against foreign currencies, increased unemployment, and other economic factors, March 2001 officially began a nationwide recession that triggered budget problems in at least forty-five states. -The 2001 recession was the fourth recession in 30 years. After past recessions budget experts recommended establishing a “rainy-day fund” (saving funds during boom times in order to cushion the shocks of economic busts). Wisconsin established the fund but never put money into it. -During the 1990-1991 recession Wisconsin’s fiscal stress was ranked the lowest among the 50 states. During the 2001 recession Wisconsin was among the states that were experiencing the highest levels of fiscal stress. -This stress was due to both structural and cyclical causes. Wisconsin’s Budget and Balanced Budget Requirements

-Wisconsin’s biennial budget is passed in odd-numbered years. -During even-numbered years the legislature holds a “budget review” or “budget adjustment” to make adjustments if necessary. -Wisconsin’s General Fund budget must be balanced each year. This requirement is contained in state statutes, rather than in the state’s constitution. -Wisconsin’s constitution allows the state to run a deficit in a given year, as long as a tax is levied “for the ensuing year, sufficient, with other sources of income, to pay the deficiency as well as the estimated expenses of the ensuing year.” Coping with Fiscal Stress: The FY 2001-2003 Budget (Act 16) -In formulating the 2001-2003 budget legislators had to deal with a budget gap that had both cyclical and structural causes. -Governor McCallum was against income and sales tax increases to address the state’s budget problems, and legislators didn’t question this. -The size of the budget problem continued to grow despite remedies that were attempted. -The Rainy Day fund existed in name only (there was no...