• WisBusiness

Tuesday, September 21, 2010

Economic growth is vital part of efforts to reduce state budget deficit


By Tom Still
Some political wonks are questioning how Wisconsin’s candidates for governor can even think about investing in economic development strategies when the state is facing budget deficits of more than $1 billion a year.

A better question is: How can Wisconsin’s next governor hope to reduce the deficit without specifically encouraging the private sector to create more jobs?

Controlling state spending must be a part of any state deficit-cutting strategy, but there’s little chance the $1.3-billion deficit projected for the budget year beginning July 1, 2011, can be eliminated on cuts alone. Unless Wisconsin citizens are willing to accept Draconian reductions in high-profile programs such as prisons, transportation, K-12 education, higher education, Medicaid and state aid for local governments, the next governor and Legislature won’t slash their way to a balanced budget.

“Even if spending for all state programs was absolutely frozen for two years and we had normal revenue growth, the budget gap would still be $778 million” over two years, wrote former Revenue Secretary Rick Chandler in an analysis for the Wisconsin Policy Research Institute.

“Normal” revenue growth of 3.2 percent per year – the Wisconsin average in the 10 years preceding the 2008 recession – is no longer good enough. Wisconsin must aspire to join a highly competitive cohort of states that have driven revenue growth at nearly twice that rate and eventually grow its way out of the deficit.

How can Wisconsin transform itself from a state that has been losing market share for decades to a place where robust economic activity is creating jobs, opportunity and tax revenues? By embracing an economic development strategy built on innovation.

Making strategic investments in Wisconsin’s global innovation economy, encouraging the entrepreneurial culture so more young companies are created, capitalizing on the state’s research and development strengths and aligning investments in education with the state’s strategic economic plan are strategies that will pay dividends over time.

A recently released study commissioned by Competitive Wisconsin Inc. and other partners noted that Wisconsin lags the U.S. average in per capita income and job creation, a situation that hasn’t really changed for decades during Republican and Democratic administrations alike.

Since 1994, Wisconsin’s population, jobs and gross domestic product have declined as a share of national totals, according to the Wisconsin Taxpayers Alliance. State per capita income almost matched the U.S. average in the late 1990s and early 2000s, but has slipped back to roughly 6 percent below the national norm.

It’s no coincidence that during that same period the state invested sparingly in economic development. In fact, the consultants noted, some U.S. counties spend more each year on economic attraction than the entire state of Wisconsin.

Policies that improve Wisconsin’s economic standing would help close state budget deficits because higher economic output leads to more tax revenue – without raising tax rates on income, property, sales or companies.

Some solid policy choices have been made in recent years. They include building on the state’s research and development foundation, standing by investors who stand by homegrown companies, and working to awaken an entrepreneurial culture that was all but dormant. But more must be done to improve access to investment capital for entrepreneurs, build a more educated workforce, create a stronger business climate and speed technology from the lab to the marketplace.

There must also be a commitment to position Wisconsin to compete in a world where the challenges to prosperity are just as likely to come from Shanghai or Mumbai as they are Chicago or Minneapolis.

That’s why both major-party candidates for governor, Democrat Tom Barrett and Republican Scott Walker, have talked about economic incentives as well as spending cuts. While their economic plans reflect different priorities, and contain varying levels of detail, it’s clear both candidates see economic development as a priority.

So do others. The Wisconsin Economic Summit series will conclude Oct. 5 in Milwaukee with presentation of a “prosperity strategy” developed over the past two months by a wide-ranging group of business, education and labor leaders. It’s a bipartisan plan that could be embraced by either candidate.

As the Nov. 2 election draws closer, voters should pay close attention to the growth strategies outlined by Barrett and Walker. Without a clear commitment to economic growth, which brings good-paying jobs, wealth and reinvestment, Wisconsin will be doomed to chronic budget deficits for years to come.

-- Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal. Learn more about the Wisconsin Economic Summit series at http://www.wiroundtable.org/summit/

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