GRAFT TAX

The Gravy Train That Caused Wisconsin’s Budget Wreck and the Hidden Tax Average Folks Pay to Keep It Rolling

January 13, 2003

INTRODUCTION

The Graft TaxAmong Wisconsin’s political class, the explanation of choice for the state’s multi-billion-dollar budget deficit is a sluggish state economy. While the normal ebb and flow of economic cycles unquestionably have an impact on both state revenues and expenses, the blame-it-on-the-economy impulse falls far short of explaining a structural deficit in Wisconsin’s budget that has persisted in good economic times and bad.

The condition of the economy also does not explain why state lawmakers, when faced last year with a $1 billion-plus budget deficit, refused to reconsider at least $493 million worth of budget favors for special interests that were earlier tucked in the original budget and even proposed adding another $49 million worth of special interest tax breaks to the budget repair bill.

The decision of the legislature and governor to instead balance the budget by selling off future proceeds from the tobacco settlement was neither fiscally sound in the short term nor in the best interests of the state over the long haul. It used one-time money to cover ongoing expenses, creating a much larger budget deficit for 2003-04. And it squandered money that was supposed to fund smoking prevention and health care programs for years to come.

It is impossible to honestly assess Wisconsin’s current financial situation without coming to the intersection of fiscal policies and budget politics. This review of the state’s taxing and spending priorities reveals an unmistakable pattern of favoritism shown by lawmakers to their biggest campaign contributors. The cost of these favors - in the form of tax breaks and loopholes, pork barrel spending projects, lucrative state contracts and more - considerably exceeds the size of the current state budget deficit. The real cause of the state’s budget crisis is not a cyclical economy, but rather political corruption.

As the old saying goes, one person’s trash is another’s treasure. The intent of this analysis is not to pass judgment on the value of particular public policies or their collective social or economic impact. It merely focuses attention on state policies that benefit the few at the expense of the many, and documents the fact that the few who benefit from these favors also happen to be among the most generous donors to state political campaigns.

When a few well-connected individuals or groups get special benefits from government, all other taxpayers pay more for the additional spending. And when a privileged few are allowed to escape taxation, ordinary taxpayers pay more to make up for the lost revenue that pays for local services, such as garbage and snow removal and police and fire protection.

The overall cost of these favors is the price average citizens pay for a broken campaign finance system that has led elected officials to trade public policy for the donations they need to bankroll increasingly expensive election campaigns. Call it the graft tax.

KEY FINDINGS

  • Breaks and policy favors for business, manufacturers, realtors, labor unions, agriculture and other powerful special interests cost just over $4.6 billion or $1,199 for each of Wisconsin’s nearly 3.9 million taxpayers (Appendix: Table 1).
  • The special interests that benefit from these breaks have contributed $36.9 million to candidates for statewide office and the Legislature since 1993. It is apparent that the source, size and timing of campaign contributions to Wisconsin policy makers had an influence on the formulation of policies whose cost is borne by taxpayers.

CORPORATE TAXES

Campaign contributions from business and manufacturing interests have helped them stifle proposed tax increases and reduce their share of the overall tax burden through tax credits, breaks and loopholes that cost each Wisconsin taxpayer $218 a year.

Individual income taxpayers shouldered 42 percent, or $5 billion, of the $11.88 billion in state taxes and fees collected in 2002. Meanwhile corporate taxes accounted for 4.2 percent, or $503 million, of the total tax burden, according to the Department of Revenue and the Wisconsin Taxpayers Alliance.

Corporations have paid an ever-shrinking share of the general state tax burden since corporate taxes peaked at 11.3 percent in 1979.

The reason for this trend has not been a chronically poor economy or a decline in the number of businesses located in Wisconsin.

Mark Bugher, former Administration and Revenue secretary, said in an April 2002 interview with the Milwaukee Journal Sentinel that the corporate tax is "so shot full of exemptions and loopholes and credits and exceptions and complications that it becomes almost irrelevant to the revenue stream of the state."

In 2000, two of Wisconsin’s top 10 public companies - Kohl’s and Manpower Inc. - saw profits of $372 million and $171 million, respectively, but paid no state corporate taxes, and a Department of Revenue memo featured in the same story said in part, "The erosion of the corporate tax base has shifted more of the tax burden to individuals."

If business had continued to pay in 2002 the 11.3 percent share that it had in 1979, its tax burden in 2002 would have been about $1.34 billion or $839.7 million more than it was. That is equivalent to $218 a year for every Wisconsin taxpayer.

Influential business and manufacturing interests also have twice opposed proposals in the last two budgets to change the way corporate taxes are calculated through a system known as combined reporting that bases taxes on income from their out-of-state operations. The new system would have increased business taxes about $98 million a year - about $25 a year for every Wisconsin taxpayer.

Among the top priorities on their legislative agenda has been opposition to any proposals that expand, create or increase their taxes and support for efforts to cut taxes that affect business.

To do this, all sectors of the business community - finance, manufacturing, construction, retail and service - have contributed $29,171,939 to candidates for the Legislature and statewide office between 1993 and Aug. 26, 2002.

PRISON CONSTRUCTION & OPERATIONS

Compared to neighboring Minnesota, Wisconsin has spent much more to build and operate its prison system. Even though the states’ crime rates are comparable and low among the 50 states, Wisconsin incarcerates many more people - about 21,000 versus about 7,000 - while Minnesota uses less expensive alternative programs for its nonviolent offenders.

Wisconsin’s prison-building binge began in the mid 1990s. Since 1995, the state has built six prisons, purchased one and expanded existing prisons. In addition, two more prisons are slated to open in 2004.

All told, Wisconsin spent $410.5 million on prison construction and remodeling from 1995 through mid-2002, according to Department of Administration data. It now costs about $516 million a year in tax dollars to operate Wisconsin’s adult prisons. Meanwhile, Minnesota spent about $154 million on prison construction and remodeling. It spends about $373 million a year in tax dollars to run its prisons.

Wisconsin taxpayers are bearing the burden of prison expansion - a bigger burden for the same results as Minnesota. Taking the construction and operational cost differences between Wisconsin and Minnesota into account, state taxpayers paid $67 each for excessive prison construction and remodeling, and now pay an excess $37 each year to run it.

A review of prison construction contracts makes it apparent that the state’s prison building spree is due in part to a steady stream of campaign contributions from the construction industry. They are one of the largest special interest groups to influence policymakers, and the largest contributor to the two previous Republican governors who shape and approve capital projects.

The industry was the leading campaign contributor to former Govs. Tommy Thompson and Scott McCallum. The governor also serves as chairman of the State Building Commission, which reviews and approves capital projects and spending. Thompson accepted $1.38 million from 1993 through 2000 and McCallum accepted $939,974 from the industry from 1993 through Aug. 26, 2002. The industry was also among the top five special interest contributors to members of the 2001-02 Legislature - $1.1 million from 1993 through Aug. 26, 2002.

The industry began to heavily target Gov. James Doyle’s campaign after he announced his candidacy for the job in June 2000. Between then and Aug. 26, 2002, Doyle received $101,519 of the total $107,754 he has accepted from construction interests.

The industry’s campaign contributions have coincided with prison construction projects they receive.

For instance, Department of Administration records show 62 companies did $156 million worth of prison contract work for the state from 1998 through mid-2002. During that same time, employees and owners of 49 of those companies, which received $151.1 million of those contracts, contributed $476,208 to candidates for the legislature and statewide office.

The owners and employees of three of the four companies that had the greatest amount of prison contracts from 1998 through mid-2002 also made the greatest number of campaign contributions among the companies that received state prison contracts during that period as shown in the following table.

Table 1
Four Firms with Largest Prison Contracts

EMPLOYER TOTAL DOC
CONTRACTS
TOTAL
CAMPAIGN CONTRIBUTIONS
CD Smith Construction $54,469,091 $91,719
Hammes Co / JH Findorff & Sons LLC* $41,987,290 $19,950 / $60,260
Boldt Group $15,825,000 $102,150

* DOA records show project was jointly built.

The state’s bidding process for major contract work is geared to choose the best contractor for the best value and preclude bribery or other political shenanigans from affecting who is chosen for the job. However, the timing of campaign contributions shortly before, during and after contracts are awarded cast doubt on the process. For instance:

  • In 2001, legislators approved and the governor signed a state budget that included buying for $79.9 million a privately built prison near Stanley that the state never requested. It sat empty for a year and a half because the state could not afford to open it, and before the first inmates arrived the state had to spend an additional $1.6 million on remodeling and repairs, according to the Department of Corrections.

    The Oklahoma-based developer, Dominion Venture Group, started making campaign contributions when it started to build the prison. From 1999 through June 2001, company owners and employees contributed $15,001 to McCallum and legislators, including $6,901 during budget negotiations to buy the prison. Company officials have not made any large individual campaign contributions since the purchase was made.

    In addition to those contributions, the company contributed $125,000 during budget negotiations to Independent Citizens for Democracy-Issues Inc., an issue advocacy group established by former Senate Majority Leader Charles Chvala to accept large campaign contributions from individuals and corporations that had special interest items in the state budget, according to information in a 20-count indictment accusing Chvala of extortion, misconduct and other violations. The contributions were made after meetings between Chvala and Dominion lobbyists, the complaint said. The prison purchase was supported by majority Senate Democrats, who later claimed the state was spending too much on the prison system during 2002 legislative negotiations on the budget repair bill.

  • Between August 2000 and December 2001, employees of JF Ahern Co. contributed a total of $10,050 to McCallum while the company was reaping the rewards of three state contracts worth $272,930.
  • In March 1999, C.D. Smith Construction of Fond du Lac was awarded a $29.5 million no-bid contract for a prison project by the State Building Commission. Two weeks later, Thompson’s campaign fund received contributions totaling $37,000 from company executives. Three months later in June 1999, Sen. Carol Roessler, another commission member, received $4,000 in contributions from C.D. Smith employees.
  • In March 1999, the Hammes Co. and JH Findorff & Sons LLC accepted a $42 million contract to build the Milwaukee Secure Detention Facility. Ten days later, Thompson accepted $10,000 in contributions from a JH Findorff executive and his spouse.
  • In late July 1993, Boldt Group employees contributed $2,100 to Thompson only a month before they received an $18.6 million contract to expand and remodel the Dodge Correctional Institution in Waupun.

ROAD CONSTRUCTION

Like the construction industry, road builders have used their campaign contributions to create a concrete gravy-train of projects that cost Wisconsin residents hundreds of millions of dollars annually.

Despite a looming deficit during the state budget debate in 2001 and a clear $1.2 billion crisis that demanded a budget repair bill in 2002, legislators and the governor approved $292 million worth of major road projects to add to a growing $1 billion-plus list of projects in progress or scheduled to begin during the next several years.

Over the last 16 years, the list has included eight projects worth $824 million that were not requested by state transportation officials, according to a Legislative Audit Bureau report and budget documents. These projects were requested by legislators and the Transportation Projects Commission, a panel of lawmakers and citizens headed by the governor that is supposed to evaluate the need and cost effectiveness of projects proposed by the department and make recommendations to the governor.

These projects are paid for by Wisconsin drivers through a self-escalating state gasoline tax now at about 28 cents per gallon - the second highest in the nation - an annual $45 car registration and other automobile and truck fees.

Overall transportation expenditures increased 34.1 percent from 1996-2001, compared to a rise of 13.3 percent in the consumer price index during the same period, according to the Wisconsin Taxpayers Alliance.

In 2002, road building and maintenance cost the state $457.9 million - about one-third more than the national average, according to transportation budget documents. The difference between the amount the state spent and the national average amounts to $39 for each Wisconsin taxpayer.

Amid a 2003-05 budget crisis expected to approach $3 billion the Department of Transportation again declined to cut back on major road construction. Instead, it initially advocated doubling the car registration fee and increasing other transportation fees to raise an additional $428 million over two years to begin repairing a projected $5 billion transportation fund deficit and protect the road builders’ slate of ongoing projects.

After that proposed budget was rejected by both McCallum and Doyle due to the fee increases, the DOT submitted another proposal that did not increase fees and kept road building projects on schedule. However, it does so by reducing state aid for local highway and transit programs, Amtrak service in southeastern Wisconsin and services provided by the State Patrol and the Division of Motor Vehicles.

These two proposed budgets show precisely how the road builders’ influence on transportation decision-making costs state residents. The first proposal sought to raise driver registration costs and fees while the second proposal affects local property taxes. Less state aid to local governments for road repair and construction means property tax increases to pay for upkeep.

Road builders nurture their prosperous relationship with the state through generous campaign contributions to elected officials who have the greatest impact on transportation spending. Since 1993, the road builders and labor unions representing workers who benefit from the continued stream of projects have made $1.7 million in campaign contributions to candidates for statewide office and the legislature.

Their top target has been the governor, who proposes road projects and spending in his proposed two-year budget to the legislature. Thompson and McCallum have received the most contributions - $332,920 and $223,752, respectively - followed by Doyle who received increasing road builder contributions as his lead over McCallum in the polls held in the waning weeks of the November 2002 election campaign.

Doyle received $136,775 from road builders and the industry’s labor unions from 1993 through Aug. 26, 2002.

Former Assembly Speaker Scott Jensen, who controlled legislation and the fate of transportation projects considered in the Assembly, was among the top legislative recipients of road builder contributions at $23,608.

CAUCUS INVESTIGATION & REDISTRICTING LEGAL FEES

Republicans and Democrats alike often try to convince their constituents they are sentinels of restrained and wise public spending. They often use the "affordability" argument to torpedo new programs, policies or laws they oppose for other reasons, including campaign finance reform and its modest $4 million a year price tag.

However, legislators had no reservations spending about $3 million - nearly $1 for every taxpayer - to pay lawyers to redraw legislative districts in a way that preserved their jobs and pay the legal fees of legislators and aides under investigation in the State Capitol caucus probe.

Both incidents show that legislators are so wrapped up with special interests that they failed to do their jobs and serve the public’s interest.

Five legislators faced extortion, misconduct in office and other felony and misdemeanor charges in the caucus investigation as of mid-December 2002. In the reapportionment case, a federal court crafted new districts after rejecting redistricting maps drawn up for Senate Democrats and Assembly Republicans by expensive private attorneys rather than legislative service agencies and state lawyers.

As of mid-December 2002, Assembly Republicans had approved $1.3 million in legal bills from Michael, Best & Friedrich to represent them in the redistricting case. The firm’s lawyers have contributed more than $229,000 mostly to Republican candidates for the legislature and statewide office since 1993. The top legislative recipient of the firm’s contributions was Jensen who has accepted $5,300 in contributions from them. As speaker, Jensen hand picked the law firm and initially agreed to set up a $2 million contingency fund that the firm could bill at will for its services.

In the Senate, Chvala hired Boardman, Suhr, Curry and Field to represent the Democrats’ redistricting plan in court. The firm billed the state nearly $727,000. Lawyers for the firm have contributed more than $22,000 to candidates for statewide office and the legislature since 1993, including $5,850 to Chvala - their top recipient.

n the caucus probe, the state had paid nearly $900,000 as of mid-December 2002 to law firms to represent legislators and aides. Collectively, these lawyers and law firms made campaign contributions totaling nearly $325,000 between 1993 and Aug. 26, 2002 to candidates for the legislature and statewide office. The firms whose lawyers have contributed the most include Quarles & Brady, $197,952; DeWitt, Ross & Stevens, $47,718; and Axley Brynelson, $36,400.

FARMLAND USE VALUE TAX

The state’s farmland use value tax has saved farmers $767 million in property taxes on crop and pasture land since it was enacted in 1995. The law was intended to provide relief to family farm operations battered by years of high debt, low corn and milk market prices and other economic woes by assessing farmland for its agricultural use rather than its higher non-farm development value.

Unfortunately, the savings for farmers becomes a cost that is shifted to non-farm property owners. In 2002, farmers realized savings of $251 million on their property tax bills, according to the McCallum admininstration. That is equivalent to $65 for every taxpayer in Wisconsin.

It has been revealed in recent years that developers and others who are not farmers but own land that qualifies as farm property receive substantial breaks from the program. Both assessors and an agricultural economist who helped develop the law acknowledged that it contains loopholes that provide large breaks for developers. "There’s no doubt in my mind that developers are coming out the big winners in this," Bob Lorier, past president of the Wisconsin Association of Assessing Officers, told The Capital Times in a January 2001 interview.

Legislative efforts were vetoed by McCallum in the 2002 state budget repair bill that sought to increase accountability by requiring landowners to file forms that identify the parcels that are eligible for use value. During the legislative process, those proposals were generally introduced by Democrats and opposed by Republicans.

Earlier, Thompson’s administration also abruptly decided to fully implement the program in 2000 using an emergency rule, rather than allowing a planned 10-year phase in to run through 2005.

On the face of it, it is curious the agricultural lobby led by the powerful Wisconsin Farm Bureau Federation has opposed any changes in the program, even ones to prevent land owners who are not farmers from receiving its benefits. But when viewed from a campaign finance angle, a cozy relationship is revealed between these two powerful special interests.

Developers and agricultural interests have worked together frequently to further their common interests. In the 2000 elections, political action committees for these two interests teamed up to run several thousand dollars worth of newspaper and radio advertisements that mostly favored Republican legislative candidates.

A review of campaign contributions from developer, agricultural and real estate interests shows Republicans benefit substantially more than Democrats. They have contributed $2.7 million in large individual and PAC contributions to Republican legislative candidates, $2.4 million to Thompson and $1.5 million to McCallum.

Democratic legislative candidates have received $763,535 from the three special interest groups.

Doyle received $247,212 from the three groups, most of which - about $227,000 - came after he announced his candidacy for governor in 2000.

SALES TAX EXEMPTIONS

The state charges a 5 percent sales tax on most goods and services but there are about 100 goods and services that are exempt from the state sales. Some of those exemptions cover necessities and services used continuously or frequently by all or much of the general public, such as food, medicine, medical services, home heating and water.

However, others hardly benefit the general public on a regular basis. They were sought by and serve special interests. Some examples include goods and services provided by musicians, beauticians, lawyers, accountants, Laundromats, manufacturers and interior designers.

All told, the Department of Revenue calculated the loss of sales tax collections for about 70 of the exemptions at $3.5 billion a year in 2000, the latest year for which estimates are available.

Throughout 2002 there have been numerous suggestions by the media, a local government group and former Thompson administration officials to reevaluate and revoke some of the exemptions to help solve the state’s projected budget deficit for 2003-05. Others view pulling parochial exemptions as a tax fairness issue. Why should one business that sells books pay sales taxes while another business a few feet away pays no sales tax because it grooms animals?

Excluding the sales tax exemption for food, medicine, heat, water and other basic necessities, the list of sales tax exemptions that benefit only powerful or narrow special interests (Appendix: Table 2) cost the state about $2.1 billion in 2000 - equivalent to $545 for every Wisconsin taxpayer.

Policymakers could even lower the general sales tax paid by consumers in addition to paying off the deficit depending upon the number of exemptions they chose to revoke, supporters of a sales tax exemption review claim.

However, these exemptions are jealously guarded by the special interests that benefit from them. Their arsenal includes generous targeted campaign contributions and independent expenditures during the election aimed at candidates for the legislature and for governor.

Table 2
Large Individual and PAC Contributions from
Top Special Interests that Benefit from Sales Tax Exemptions
to Legislative Candidates and Gov. James Doyle

Interests Legislative
Candidates
Doyle
Business $1,585,01 $116,942
Manufacturing & Distributing $1,959,641 $98,946
Construction $1,779,195 $107,754
Lawyers & Law Firms $2,006,828 $653,479
Real Estate $1,368,657 $125,313
Transportation $1,077,210 $80,054
Agriculture $705,050 $14,145

These special interests contributed $3.6 million in campaign contributions from 1993 through Aug. 26, 2002 to McCallum - much of it when he was governor in 2001 and 2002.

The pattern is the same for Doyle, who received $1.3 million from these interests. Most of these contributions - about $964,000 - were made after June 2000 when he announced his candidacy for governor.

Contributions to legislative candidates from these special interests total $11.3 million, or about 36 percent of their total large individual and PAC contributions from 1993 through Aug. 26, 2002.

PROPERTY TAX EXEMPTIONS

Most of the personal property, such as machinery, equipment and other items owned by business, is not subject to the personal property tax because of exemptions enacted over the past several decades.

While state statutes identify the exemptions, there is no state estimate available of the total annual break that special interests received from these exemptions. Aside from personal possessions, most of the exemptions are classified in one of four categories: pollution abatement and treatment equipment; manufacturers’ machinery and equipment; business inventories and livestock; and computers and related equipment.

The Legislative Fiscal Bureau estimated the total property value in those categories at $34.1 billion. The bureau suggested that one means to estimate the exemption value would be to multiply the total property value by the statewide average mill rate of .02103 which puts the estimated exemption value at $717.1 million - equivalent to $186 per taxpayer each year.

The number and value of items exempt from the tax is actually greater than the items that are taxed. Personal property tax collections on non-exempt items in 2001-02 amounted to about $222 million which represented only 3.4 percent of all property taxes paid. A 2002 Legislative Fiscal Bureau report on the personal property tax noted: "The large number of exemptions in the statutes is indicative of the piecemeal approach the Legislature has taken in exempting property."

The property tax-exempt items - some of which get a double break because they also are exempt from the sales and use tax - include pleasure boats used for recreation, commercial fishing boats, charter sailboats, fishing and tour boats, bank automated teller machines, mechanics’ tools, farm and manufacturing machinery, vending machines, computer equipment and software, logging equipment, motion picture theatre equipment, pollution abatement and treatment equipment, digital broadcasting equipment used by television, radio and cable stations, property in the Bradley Center in Milwaukee, property in professional baseball and football stadiums, livestock, mobile homes and structures used to shade ginseng plants.

Initially, local governments were fully compensated with state aid when policy makers approved a property tax exemption that reduced the tax base and shifted more of the burden to residential property tax payers. However, not all property tax exemptions have been compensated by state aid, and in other cases the aid has not always fully compensated or kept pace over time with the increasing value of the exemption, according to the fiscal bureau.

But whether government aid is provided or not, those special interest exemptions mean state tax dollars must be used to supplement or local tax dollars must be increased to replace lost revenues that pay for local services, such as police, fire and snow removal.

An array of special interests benefit and fiercely protect these and other tax breaks, as well as go on the offensive to prevent new, expanded or increased taxes or fees from being imposed. The chief beneficiaries of personal property tax exemptions have been business, manufacturing, leisure and agricultural special interests which have contributed $10.9 million to candidates for statewide office and the legislature from 1993 through Aug. 26, 2002.

STATE PENSION INCREASE

A 1999 law generally supported by state employee unions, rushed through the legislative process in less than a week by Chvala and Jensen and signed by Thompson, paid state and local government retirees an estimated $237.8 million more in benefits in 2002 than they would have received without the law. That is equivalent to $62 per state taxpayer.

On average, the pension increase began to pay 115,000 state retirees an additional $160 a month beginning in summer 2001, and an estimated 7,100 new retirees in 2002 got an average $200 a month more than they would have without the law, according to the Department of Employee Trust Funds.

The estimate could vary depending upon the stock market, the number of retirees entering and leaving the system and other factors. At the time the pension increase was being considered, a former state retirement official estimated the change could cost state and local governments a projected $5.7 billion over 12 years, or an average $475 million a year.

That is because taxpayers through the state and local governments that pay into the retirement fund for their employees will have to begin replenishing the $4 billion lost by the fund due to the enhanced pensions and poor stock market performance, critics of the pension plan say.

The beneficiaries of the pension boost were state and local government employees, many of whom are represented by unions that historically make generous campaign contributions as well as independent expenditures both for and against candidates. They traditionally back Democrats.

Public employee unions contributed about $1.9 million to legislative candidates from 1993 through 2000, including $1,045,026 to Democratic legislative candidates. Thompson received $90,777 from those unions during the same period.

In addition to campaign contributions, PACs controlled by state employee unions and the Wisconsin Education Association Council spent $1.1 million in independent expenditures during the 2000 campaign.

Independent expenditures are limitless amounts of money spent by special interests - purportedly without the candidates’ involvement - that often pay for radio, television and newspaper advertisements and direct mail brochures that urge voters to support or oppose a candidate.

ETHANOL SUBSIDIES

Agriculture interests successfully pushed a plan to give up to $3 million a year - nearly $1 per taxpayer - in state subsidies to ethanol plants in 2002-03. The proposal was introduced by McCallum in his 2001-03 state budget, backed by Assembly Republicans and ultimately approved by a legislative conference committee before the budget was signed by the governor.

During budget negotiations, agriculture interests contributed $38,979 to McCallum, $12,350 to Assembly Republicans and $2,000 to conference committee members. From 1993 through June 2001, the industry had contributed nearly $319,000 to the former governor, the Assembly GOP and legislative leaders.

Before 2001, ethanol producers had contributed a scant $300 to a former Democratic legislator. Since then ethanol industry executives have contributed $13,547, including $10,497 to McCallum, between January 2001 and Aug. 26, 2002 to create and protect their subsidy. It was during that period of time when budget negotiations created the program, and then negotiations during a subsequent budget repair bill threatened to cut the program.

TELEPHONE TAX

The telecommunications industry fought a proposal introduced during the 2001-03 budget negotiations that would have allowed local governments to impose a 2 percent gross receipts tax on telephone companies and potentially raise an estimated $60 million a year - equivalent to $16 for every Wisconsin taxpayer - to reduce local property taxes. The proposal was introduced by Senate Democrats and later dumped in July 2001 during conference committee negotiations on the budget sent to the governor.

In the criminal complaint against Chvala, an Ameritech lobbyist said the item was dropped after the company contributed $40,000 at Chvala’s behest to a Washington D.C-based committee called the Democratic Legislative Campaign Committee which later made contributions to Independent Citizens for Democracy. That organization was allegedly controlled by Chvala to help elect Senate Democrats. The company made another $40,000 contribution to the DLCC in early 2002, the complaint said.

The lobbyist described the process as a money laundering operation designed to hide corporate campaign contributions to candidates, which are illegal in Wisconsin.

In addition, the telecommunications industry contributed $32,221 in large individual and PAC contributions to the legislative conference committee members during budget negotiations and $205,690 to them since 1993.

STATE EMPLOYEE BENEFITS

State employee unions convinced majority Senate Democrats during budget adjustment bill negotiations in summer 2002 to shelve legislative proposals that would have required them to pay some of the cost of their health insurance and other benefits.

U.S. Census figures show that per capita spending on health insurance for government employees increased 650 percent from 1981-2000, second only to the 655 percent increase in per capita spending for Wisconsin’s prison system.

Currently, about seven in 10 state employees pay nothing for their health insurance and the remainder make only a nominal contribution compared to private sector employees, according to the Department of Employment Relations. Health insurance costs state taxpayers about $166 million, or an average $4,867 for each of its 34,166 full-time workers in 2001.

The budget repair proposals would have cut taxpayer costs for employee benefits by about $15.8 million - or $4 for each state taxpayer - by requiring state workers to pay $10 a month for single coverage and $20 a month for family coverage. They would have also required part-time state workers to pay part of their health insurance costs, and employees would have had to pay to participate in an insurance program that continues their salary after they use their sick leave.

Assembly Republicans introduced the proposals in the 2001 budget repair bill to help reduce the state’s $1.1 billion budget deficit. But the proposals were dropped after opposition by Senate Democrats, who are long time beneficiaries of hefty campaign contributions from labor union political action committees.

Legislative candidates received $168,571 from state employee unions from 1993 through Aug. 26, 2002. These unions also made at least $34,260 in independent expenditures on behalf of legislative candidates in the 2000 and 2002 elections.

….AND THE BURDEN WILL ONLY INCREASE

Taxpayers will continue to pay as much if not a larger graft tax in 2003 unless legislators and the governor cut breaks and spending for special interests in the upcoming 2003-05 state budget session.

In addition to the annual costs to each taxpayer highlighted in the previous items, here are some additional expenses slated for 2003:

MORE ON PRISON SPENDING

In addition to those new prisons and the tens of millions of dollars they cost to build or purchase in recent years, the Legislature’s Joint Finance Committee approved a three-year contract that may cost at least $60 million a year to house up to 5,500 Wisconsin inmates in private prisons outside of Wisconsin.

The committee reviews and rewrites the governor’s proposed two-year budget and sends it to the legislature for consideration. Its action renewed contracts the state has had since 1998 with Corrections Corporation of America, whose prisons currently hold about 3,500 Wisconsin inmates.

So in addition to paying for those new prisons the state has delayed opening because they are too costly to run, taxpayers will now foot an additional $16 a year to house Wisconsin inmates in more affordable out-of-state prisons.

Corrections Corp.’s relationship with state policymakers has been up and down. Campaign contributions from company executives were up when a contract was under consideration and down after it was in place.

In 1998, when the state approved its contract with the company, one of its executives contributed $4,000 to the governor and legislative leaders. During the next three years, nominal contributions totaling $2,700 were made. In 2002, another company executive made contributions totaling $3,000 - nearly all to legislative leaders and members of the Joint Finance Committee.

HIGH-TECH ZONES

This is a new program approved in the 2001-03 state budget and set to begin in 2003. It allows the state to designate areas where new or existing high-technology businesses will get state tax credits equal to their total property, income and sales taxes. It calls for creating up to nine high-technology zones and providing up to $45 million in credits - equivalent to $12 for each Wisconsin taxpayer.

The proposal received raves from businesses and industry, which contributed $2.1 million to the 2001-02 Legislature from 1993 through Aug. 26, 2002, including $450,989 while legislators were negotiating the budget during the first half of 2001. McCallum received $1.1 million from business and industry from 1993 through Aug. 26, 2002, including $336,0096 during budget negotiations.

AppendixPress ReleaseGraft Tax (Part 2)Graft Tax Scorecard