GRAFT TAX

Part Two

March 19, 2003

INTRODUCTION

Man wearing barrel with Graft Tax Part Two stenciled and written on itIn January, the Wisconsin Democracy Campaign issued a report that analyzed various tax breaks, loopholes and other lucrative deals and favors had by powerful special interests who make large campaign contributions to state policy makers.

“The Graft Tax” report highlighted that pay-to-play politics and the state’s broken campaign finance system resulted in $4.6 billion worth of perks to wealthy donors - equivalent to about $1,200 per taxpayer.

Since the report was issued, Democratic Gov. Jim Doyle and the Republican-controlled Legislature have crafted and approved a budget adjustment bill to partially remedy a $454 million deficit in the current fiscal year ending June 30, 2003. The governor has also proposed a 2003-05 budget that addresses a $3.2 billion deficit.

A review of both budgets shows that the governor and the legislature, thus far, have proposed cutting only a fraction of the breaks - $1 million in ethanol production subsidies - identified in “The Graft Tax.”

And new state estimates on the value of sales tax exemptions to special interests identified in the report increased their value by $410 million, or about $106 per taxpayer. This puts the total taxpayer cost of political graft at $5.03 billion, or about $1,305 a year for each of the state’s nearly 3.9 million taxpayers.

The following update, “Graft Tax (Part 2),” highlights how the budget adjustment bill and the proposed 2003-05 budget shield most of the costly breaks to special interests that have made $46.3 million in large campaign contributions since 1993 and gouge taxpayers even more in the next two years.

THE WINNERS

Road builders and associated unions

$1.9 million in campaign contributions to mostly Republican candidates for statewide office and the Legislature from 1993 through Oct. 21, 2002.

The industry’s trade groups opposed Doyle’s 2002 budget adjustment plan to use $22 million from the Transportation Department’s road building and operations budget to help fill the state’s budget deficit, so the Republican-led Legislature removed the plan and made larger cuts in conservation, recycling and other funds instead.

A proposal in Doyle’s 2003-05 budget to use $500 million in major road building cash to help pay for aid to local governments and schools may face a similar fate, even though Doyle’s budget does not cancel major road projects and continues to spend substantially more money on major road building and rehabilitation than the national average.

Doyle does this through a substantial increase in bonding, a move that the Legislative Fiscal Bureau says will cost taxpayers an additional $75 million, or $19 per taxpayer, to pay off over the next few years.

The governor’s budget spends about $386.4 million on major highway construction and maintenance in 2003-04, which is about 21 percent higher than the current national average, and $487.7 million in 2004-05, which is about 63 percent more than the national average.

The difference between the national average and what the budget proposes to spend in each of those years amounts to about $22 per taxpayer in 2003-04 and $47 per taxpayer in 2004-05. As Doyle put it in a March 12 speech: “Let me make one thing clear: There are going to be plenty of roads built in Wisconsin in the next two years.”

Even so, Republican legislative leaders oppose the governor’s proposed diversion of transportation money, saying they would rather make deeper cuts in local government aid, which helps pay for local police, fire, snowplowing and garbage services and moderate property tax increases, than cut road building dollars.

The business community and other powerful special interests led by Wisconsin Manufacturers and Commerce and other trade groups

$36.2 million in campaign contributions to candidates for statewide office and the Legislature from 1993 through Oct. 21, 2002.

Doyle accepted an increasing amount of campaign contributions from these interests last fall en route to his November victory, and they got the budget proposal from the Democratic governor that they wanted - no general tax increase and no expansion of the sales tax base.

The governor’s budget left untouched $2.5 billion worth of sales tax exempt items, as well as a laundry list of property tax exemptions worth an estimated $717 million a year. Some of those sales and property tax exempt items identified in “The Graft Tax” include charter sailboats, logging equipment, property in professional sports stadiums, broadcasting and motion picture equipment, interior design services and pet grooming.

Prison industry

$4.7 million in construction industry campaign contributions to mostly Republican candidates for statewide office and the Legislature from 1993 through Oct. 21, 2002. The industry also spent about $82,200 on independent expenditures in the past three elections.

The state’s prison budget was among the few state agencies whose budget was increased by Doyle - to just over $1 billion a year. The department’s bump came from an increase of 4.8 percent, or $79.3 million, in state tax dollars.

Some of that money - about $13.2 million - will be spent over the next two years on two newly built and renovated prisons that will remain closed because the state has found it is cheaper to spend about $53 million this year to house about 3,000 inmates in out-of-state facilities.

The new prisons were built before Doyle’s watch and the administration contends it is now cheaper to keep them closed and rent space. However, taxpayers still got stuck with a construction bill of about $58 million - equivalent to $15 per taxpayer.

The construction industry was also the leading special interest contributor to the previous two governors who set the agenda for capital projects. In several instances, industry contributions coincided with prison construction projects they received, as noted in “The Graft Tax.”

Wisconsin Education Association Council and affiliated teachers unions

$1.3 million in campaign contributions to mostly Democratic candidates for statewide office and the Legislature from 1993 through Oct. 21, 2002. They also have spent at least $2.7 million on independent expenditures and issue ads since 1996, mostly in support of Democratic candidates.

Doyle appeased the state’s largest teachers union - a long time Doyle benefactor - in his budget by proposing an end to the qualified economic offer, which is a law that limits teacher salary and benefit increases to 3.8 percent. The budget also contains other non-fiscal policy items that critics say increase teacher control of school education policy and give them a greater advantage during contract negotiations.

Native American gambling operations

$1,000 in campaign contributions to Doyle in 2002 and nearly $1 million in soft money contributions from the Potawatomi and Ho-Chunk and Oneida Nations that paid for issue ads in support of Doyle and other Democratic candidates, much of it in the waning days before the November election.

The deficit’s repair relies partly on a huge increase in tribal gaming payments to the state, but the state’s estimated $237 million take over the next two years comes at a hefty price - the appearance that government policy was once again for sale in exchange for pocketbook help from wealthy donors.

In February, Doyle who has been a long time opponent of gaming expansion penned gambling agreements with Native American tribes that contain no expiration dates and expand casino games and hours in exchange for higher payments to the state.

Doyle defends his decision with concession, saying Indian casinos are here to stay and there is nothing the state can do about it, and that the 10-fold increase in payments to the state is needed to help plug the budget deficit.

However, the timing and size of the tribes’ contributions just a few months earlier coupled with the content of the compacts and the speed at which they were reached make the agreements suspect, prompting Republican-led legislators to pass bills, which Doyle vetoed, that require legislative approval of future agreements.

In addition, Republican Rep. Steve Freese told Doyle he intends to single out Indian tribes and prohibit them from using gaming profits for campaign contributions, comparing it to the state’s ban on direct contributions to candidates from corporations.

Unfortunately, Freese’s proposal ignores imposing a similar ban or restriction on millions of dollars worth of direct contributions and outside spending - much of it fueled by corporations - from business, manufacturing, agriculture, banking, utility and other powerful interests to candidates of both parties to sway public policy and spending in their favor.

Other states have enacted such bans or restrictions on special interest contributions to discourage their influence on policy makers. Eight states ban contributions from all gambling interests, including Louisiana whose ban was recently let stand by the U.S. Supreme Court. Four states restrict contributions from the insurance industry and at least three states prohibit contributions from people associated with state-regulated industries.

The campaign contributions that powerful special interests make are the reason they were left unscathed by policy makers in the 2001-03 state budget, two subsequent budget adjustment bills and the now the proposed 2003-05 state budget. The contributions have helped preserve and increase the value of the breaks they get at taxpayers’ expense.

 

THE LOSERS

“I am concerned that these cutbacks will affect only those who are middle income workers and the bankers, realtors, telecommunications executives, and manufacturers and all those with incomes in excess of $300,000 per year in our state will not bear any of the pain. Needless to say I was not happy with your answer in caucus that these folks will ’share the pain’ just as everyone else. That is not true,”
- Rep. Marlin Schneider, D-Wisconsin Rapids, in remarks to Doyle about the governor’s budget proposal.

Drivers

Doyle’s proposed 2003-05 budget calls for $75.7 million in vehicle fee increases over the next two years through a $10 increase in annual auto registration and title fees. These increases are in addition to an automatic April 1, 2003 state gas tax increase to 28.5 cents a gallon - one of the highest in the country. The gas tax will automatically increase to an estimated 29.2 cents in April 2004 and 29.9 cents in April 2005.

The increase is needed in order to keep pace with the state’s $1 billion-plus list of major road projects.

Homeowners

Doyle’s proposed budget reduces aid to local governments and to schools, opening the way for cuts in local services and/or property tax increases despite pledges during his campaign and in his budget speech to solve the deficit by making state government shoulder most of the burden.

The governor’s budget increases the reduction in aid to local governments from $40 million already planned under current law to $120 million, effectively tripling the cut from about $10 to $31 per taxpayer.

But it could get worse by the time the Legislature is finished revising Doyle’s budget. Doyle’s budget uses $400 million in road building cash to pay for part of the cost of aid to local governments. However, Republican legislative leaders whose caucuses benefit handsomely from road builder contributions say they will oppose the governor’s proposal and replace it with deeper cuts in local government aid.

Doyle and legislators say the state’s large deficit means it can no longer fund two-thirds of school costs. The governor’s budget proposal effectively cuts school aids by $400 million over the next two years. In the event local taxpayers decide they do not want to pay more property taxes schools will have to cut budgets which translate into larger classes and fewer offerings.

The Wisconsin Property Taxpayers Inc. estimated that the average homeowner could pay as much as $576 more in property taxes in the next two years from Doyle’s proposed reductions in aid to schools and local governments. Deeper cuts in aid could cost property taxpayers even more.

Elderly

Many of the roughly 77,000 elderly state residents enrolled in the state’s SeniorCare Prescription Drug Assistance Program may have to pay substantially higher deductibles and fees in order to stay in the program.

The program started in 2002 is designed to help seniors age 65 and older with prescription drug costs. In addition to a $20 annual enrollment fee, participants pay co-payments and deductibles on a sliding scale depending upon their income.

Doyle’s budget plan increases the enrollment fee to $25 or $30, depending upon the enrollee’s income level, and the program’s $500 deductible is increased to $750 or $850, depending upon income level.

University of Wisconsin students

The budget cuts $250 million in state aid to the UW System but allows the system to raise tuition as much as 19 percent or up to $700 per year at UW-Madison and UW-Milwaukee and up to $500 a year at the out-state campuses in order to make up an estimated $150 million of the aid loss.

State workers

Doyle’s budget eliminates about 2,900 state jobs.

Autistic children

Doyle’s budget eliminates the Children with Autism program to save about $8 million in state funds. This is an in-home therapy program considered among the models in the nation at helping victims of autism in order to keep them out of more costly institutions later in life.

Press ReleaseGraft Tax (Original Report)  • Graft Tax Scorecard