Weekly Fiscal Facts are provided to Wisconsin Newspaper Association members by the Wisconsin Policy Forum, the state’s leading resource for nonpartisan state and local government research and civic education. The Wisconsin Policy Forum logo can be downloaded here.
After retaining robust budget reserves the last five years, Wisconsin leaders are trading much of that fiscal cushion for an “all of the above” state budget that cuts income taxes, increases special education aid to schools, and boosts funding for transportation projects, child care, and the University of Wisconsin System.
The state’s next fiscal plan, from July 2025 through June 2027, puts its emphasis on the here and now. Signed into law July 3, it was passed in timely fashion thanks to a deal between Democratic Gov. Tony Evers and Republicans who control the state Legislature. Yet because it will draw down most of the more than $4 billion state surplus, it will leave a more challenging path to balance the state budget two years from now.
The 2025-27 budget is the fourth straight that was approved amid divided state government, with Republicans controlling the Legislature and Evers as governor. Notably, each of these budgets was approved within days of the July 1 deadline — showing that, despite concerns about polarization, state leaders can overcome partisanship to compromise on at least some key issues.
The final state budget includes both tax cuts sought by Republican legislators and some new spending sought by Evers. It includes two major cuts to the Wisconsin income tax, the largest revenue source for the state. One enlarges the state’s second income tax bracket and shrinks its third bracket, so that more taxable income would be subject to the second bracket’s lower marginal rate of 4.4%. The second cut shelters a share retirement income from state income tax. In total, the budget will cut taxes by about $1.5 billion relative to what would have been collected the next two years under prior law.
This budget also includes significant new spending. It marks an unprecedented shift in how the state allocates new funding to schools, as it freezes general aid and per pupil aid to K-12 districts. Instead, it pours nearly all increases into state aid for special education, boosting such funding by more than $500 million over the two-year budget.
The budget includes $110 million in federal funds that will be paid directly to child care providers, as well as $123.2 million to increase access for low-income families participating in the Wisconsin Shares subsidy program. The budget also provides $88.5 million more in state funding for the Universities of Wisconsin over the two years and nearly $22 million more for the Wisconsin Grants, the main form of state financial aid.
The net effect of these and other changes will be to spend down most of the state’s reserves. The state’s general fund balance is projected to fall from $4.4 billion on July 1 to $770.5 million on June 30, 2027, the lowest year-end balance in the state’s main fund since 2018. However, the state would retain an additional $2 billion balance in its rainy day fund. Its total estimated reserves would be 11.4% of net general fund appropriations in 2027, more than in any year prior to the pandemic.
Those reserves could be needed. In the second year of the plan, budgeted general fund spending would total nearly $24.4 billion, more than the $23.1 billion in general purpose revenue (GPR). This projected shortfall would be one of the largest in a generation, setting up a sizable potential gap in the 2027-29 budget that state leaders would need to address.
This information is provided to Wisconsin Newspaper Association members as a service of the Wisconsin Policy Forum, the state’s leading resource for nonpartisan state and local government research and civic education. Learn more at wispolicyforum.org.
