State budget takes $51 million hit

Tax changes in Illinois add to cost of reciprocity agreement payments; GOP believes business will migrate

MADISON - Already struggling to pass a state budget, lawmakers learned Tuesday the state would have $51 million less than expected over the next two years because of tax changes in neighboring Illinois.

Illinois put in place a budget last week that raises taxes by $5 billion and that will have an effect on Wisconsin’s budget. Each year, Wisconsin makes payments to Illinois to make up for the fact that more Badger State residents work and owe income taxes in Illinois than the reverse. This reciprocity agreement allows bordercrossing workers in each state to file just one state income tax return.

The Wisconsin workers who commute to businesses in Chicago and other Illinois cities will now owe more in taxes to that state, meaning that in the short term, Wisconsin will have to pay more to Illinois to maintain the reciprocity agreement.

In addition, Wisconsinites who will pay higher taxes in Illinois will be able to claim higher credits for those payments on their Wisconsin taxes, thereby reducing how much money the Badger State takes in.

Together, the changes will mean Wisconsin will have $51 million less over the next two years than earlier estimated, according to a Tuesday memo from the Wisconsin Legislative Fiscal Bureau.

GOP leaders in the Wisconsin Legislature said they believed the Illinois budget would ultimately lead to more businesses relocating to Wisconsin.

Wisconsin lawmakers missed their July 1 deadline for putting in place a budget, and Senate Majority Leader Scott Fitzgerald (R-Juneau) said the Illinois news will make their job tougher.

Republicans control all of state government but have been split on transportation and other issues.

Senate Republicans emerged from a caucus meeting Tuesday saying they were united on key issues. But they remain at odds with Assembly Republicans, who are seeking more money for highways.

“There’s just no appetite for new revenue,” said Fitzgerald, speaking of Senate Republicans.

But Assembly Republicans say more money needs to be raised to put toward I-94 south of Milwaukee and other projects.

Senate Republicans want to borrow $712 million for transportation over the next two years, with $350 million of it being paid back by the state’s main account that funds schools, said Sen. Alberta Darling of River Hills, co-chair of the Joint Finance Committee. The rest would be paid back using gas tax and vehicle fee collections.

Fitzgerald, GOP Gov. Scott Walker and Assembly Speaker Robin Vos (RRochester) are to meet Wednesday.

Fitzgerald and Darling said they had effectively reached an agreement with Assembly Republicans on schools. Darling said she would like the budget committee to take up that issue but that Assembly Republicans don’t want to meet until they reach a deal on transportation.

Fitzgerald said Senate Republicans are interested in cutting income taxes, as Walker has proposed, and eliminating the personal property tax paid by businesses.