POLITICS
01/02/2013 12:19 pm ET | Updated Mar 04, 2013

Wisconsin Republicans Retain Control, Seek Tax Cuts, 'Right To Work' Law

In the last session of the state Legislature, Wisconsin Republicans went all out. Conservatives around the country salivated with envy as Gov. Scott Walker, with dizzying speed, pushed through seemingly every policy that the national conservative movement holds dear.

He gutted collective bargaining rights for public employees; signed one of the strictest voter ID bills in the nation; partially privatized the state Department of Commerce; undid mandatory sex education and put in place several abortion regulations; approved a concealed carry bill; passed a tort reform bill meant to deter lawsuits against companies; put strict limits on the ability of municipalities to raise property taxes; and approved a number of corporate tax breaks.

The conservative appetite is far from sated, however. Many Republicans, as well as their allies in the business community, yearn for more. They want steeper tax cuts for businesses and individuals; they want a "right to work" law that would weaken unions in the private sector; they want further expansion of voucher schools -- even if it means cutting more funding from public schools.

There are signs, however, that round two of the Walker era will not be another grand step toward conservative paradise. Not only are many rank-and-file GOP legislators weary of the turmoil that the last session brought, but some key moderates in the state Senate appear concerned that another round of favors to the business lobby could inflict unacceptable damage to public services -- particularly public education.

Here are the issues expected to garner the most attention in the legislative session that begins Jan. 7.

Mining

Gov. Scott Walker and legislative leaders have made clear their intent to push legislation to change mining regulations, ostensibly to allow for the creation of an iron ore mine in northern Wisconsin.

Last session, a proposed mining bill died in the state Senate after moderate Sen. Dale Schultz, R-Richland Center, said he didn't believe the legislation provided necessary environmental protections. With only a one-seat GOP majority in the Senate, Schultz's defection on the issue ensured the bill's defeat.

With a three-seat majority now, Republicans feel confident that some type of mining legislation will pass.

"I think (mining legislation) will be one mechanism and our top priority in making sure that the state of Wisconsin creates jobs," says state Rep. Pat Strachota, R-West Bend.

Republicans say the bill will streamline the process for mining companies to get permits by requiring the Department of Natural Resources to decide within 420 days whether to grant a permit.

Misgivings by some Senate Republicans, however, could mean Walker won't get everything he wants from the bill.

"A number of senators have said publicly they expect changes from the (previous) Senate bill," says Sen. Rob Cowles, R-Green Bay, who throughout his two decades in the Legislature has developed a reputation as an environmental conservationist. However, Cowles would not speculate on any specific changes in the legislation.

Sen. Tim Cullen, D-Janesville, who worked with Schultz last session on an alternative mining proposal, is skeptical, however, that Republicans will change the bill enough to receive support from Democrats. In the brief period of time when Democrats controlled the Senate after last summer's recall elections, Cullen proposed a bill that would have extended the permitting timeline from 420 days to two years and would have kept current environmental standards in place. He says he has no hope that Republicans will approve such legislation.

"I'm not particularly optimistic," he says. "They've talked about bipartisanship but they have the power" and are not likely to share it.

But it is far from guaranteed that a mining bill with a streamlined permitting process would create any jobs in the near future. No matter how friendly Wisconsin makes its mining regulations, other actors, including the Army Corps of Engineers and the Bad River band of Lake Superior Chippewa, whose land includes waterways that could be polluted by a mine, would have a say over any proposed project. That could launch it into a complicated federal approval process.

"One of the great misperceptions during this entire debate has been that if a radical bill were to pass, there would be nearly instantaneous job creation," says Todd Allbaugh, a spokesman for Schultz. "According to all reliable sources we have gathered, passing such a bill could in fact delay the process for up to 10 years because you're ceding control to the federal level rather than keeping decisions in Wisconsin."

Taxes

Walker and Assembly Speaker Robin Vos have signaled interest in cutting state income taxes. The details of such a cut, however, remain unknown.

Sen. Glenn Grothman, R-West Bend, ventured a guess.

"I think because Republicans care about the middle class, we will be aiming mainly at middle-income taxpayers," he says. "Your middle-income people -- $30,000 to $150,000 range -- would see most of the benefits."

But even the most optimistic budget estimates suggest the Legislature doesn't have enough money on hand to dole out a significant tax cut. In a recent interview with the MacIver Institute, Walker pegged the state's surplus at roughly $500 million -- a figure that appears nowhere on budget projections prepared by the Department of Administration or the Legislative Fiscal Bureau. In fact, DOA puts the state's current balance at $348 million and projects that it will decline in the coming years, due to increased expenses.

Bob Lang, director of the Legislative Fiscal Bureau, says Walker likely got his figure by including the $125 million currently in the state's rainy day fund.

Therefore, the bigger the tax cut Walker proposes, the more likely Republicans would have to dig into the fund, which was designed for emergency expenses, not tax cuts.

"The last thing you want to do is take money out when you're not in a recession," says Andrew Reschovsky, a University of Wisconsin economics professor who researches state finances.

Of course, the state of the economy itself -- and the outlook for the coming year -- is the subject of debate and will shape how some moderate Republicans in the Senate respond to the governor's wishes.

Cowles, for instance, suspects that revenue from sales taxes will be lower than expected, largely due to Congress' apparent inability to resolve all of the "fiscal cliff" details.

"You can't say 'I'm going to pass some massive tax cut and let some other Legislature in the distant future pay for it," he says.

Further complicating any tax cut proposal are Republicans who wish to increase spending on public schools.

Sen. Luther Olsen, R-Ripon, chair of the Senate Committee on Education, has said he hopes to increase per-pupil spending by $200. Some of that money would come from increased state spending, while the rest would be made possible by allowing school districts to increase the property tax levy.

Olsen is reluctant to endorse a tax cut until he sees how it would affect other state commitments, particularly education.

"If everybody's taxes go down $100 but then we can't fund the technical colleges and schools, was that worth it?" he asks.

Unsurprisingly, Olsen's view contrasts with that of more conservative members of the GOP caucus.

"I don't see why we wouldn't keep the property tax levy even for the next budget," says Grothman. "Maybe the economy's doing better than we think and we'll have more money (for a tax cut)."

However, for all the talk about cutting income taxes, Republicans do not appear interested in undoing many of the tax increases put in place by Democrats in 2009. At the time, former Gov. Jim Doyle, facing a $5.7 billion state budget deficit, raised $1.4 billion by -- among other things -- increasing the income tax rate on the wealthiest 1 percent of taxpayers and reducing the tax exemption on capital gains.

Although they decried the Doyle tax hikes at the time, Republicans do not seem to believe repealing such policies is fiscally feasible. Furthermore, it probably would not be smart politically to cut taxes on the rich at a time when many Americans are frustrated with the refusal of congressional Republicans to raise taxes on the wealthy.

Venture capital

Business interests are pushing hard for Republicans to establish a venture capital fund aimed at helping develop startup companies and create jobs. Wisconsin Manufacturers & Commerce, the business lobby that spent millions of dollars on behalf of GOP candidates this fall, has signaled that such legislation is a top priority.

The question is whether Walker can overcome the apparent hurdles that prevented Republicans from approving a venture capital bill last session, when the governor proposed legislation that would have allocated $200 million in tax credits to insurance companies in exchange for cash that the state then would give to private venture capital firms to invest.

Some Republicans clearly have bad memories of a similar program from the 1990s that created large profits for a New York-based firm but very few jobs in Wisconsin.

"I get sort of nervous when we start doing venture capital, with all honesty," says Olsen. "You've got to realize that venture capital is risky capital. These (startup) companies need more than money, they need expertise."

Perhaps further complicating the prospects of a venture capital bill are the recent embarrassing revelations that the Wisconsin Economic Development Corp. -- the public-private partnership Walker set up to replace the state Department of Commerce -- lost track of roughly $7 million of loans it had doled out to a number of companies.

It is not likely a scandal great enough to bring down the governor, but it may make legislative Republicans even warier of policies that the public may perceive as too corporate-friendly.

However, many in the business community consider the venture capital bill more important to Wisconsin's economic advancement than any other policy Republicans might approve this session.

For instance, Paul Jadin, the former CEO of WEDC, who left the agency in November to head Thrive, a group focused on economic development in the Madison area, says venture capital is clearly the number-one priority for business development. He points, for instance, to a recent report that UW-Madison lagged far behind many of its peers in creating startup companies.

"I think having more capital available is a big first step," he says. "There are Ph.D.s who come out of UW and look for greener pastures."

Venture capital may in fact be the only major policy issue for which Walker can attract Democratic support. Cullen, for instance, says he wants to vote for a venture capital bill, but only if there are guarantees that the investment decisions would be entirely apolitical. For that to be possible, he says, those making the calls cannot be gubernatorial appointees, as they are at WEDC, for instance.

He suggests having the State of Wisconsin Investment Board appoint the "fund of funds manager."

Jadin says that person should facilitate investments in companies only if they can prove that they have already secured private investment. Thus, the state would not be in the business of starting businesses from scratch. The state would then retain equity in the firm that it would seek to sell off as soon as possible.

"The government never wants to be an owner very long," says Jadin.

It is possible that Walker could get a bipartisan bill approved, but it is also likely that a policy that is less palatable to Democrats could get passed, despite strong reservations from many in his party.

To do that, he could simply put a venture capital provision in the budget, anticipating that few in his party would vote against the entire budget because of one policy they don't like.

"It's hard to keep things out of the budget," says Grothman.

Give moderation a chance?

The consensus among insiders seems to be that Republicans do not want any distractions from the "jobs creation" message that is central to Walker's appeal to moderate voters. Nevertheless, Democrats are equally certain that polarizing right-wing policy is not off the table, merely lurking in the shadows.

Democrats are particularly certain it is only a matter of time before Republicans pursue policies aimed at bolstering their electoral position. Although Walker recently backed off a suggestion to eliminate election day registration, citing the cost of implementing the policy, he certainly did not permanently close the door on the plan. And Walker even signaled openness to changing the way Wisconsin apportions its Electoral College votes, from a winner-take-all system to one in which candidates receive Electoral College votes based on congressional districts. Under such a system, Barack Obama would have only won five of Wisconsin's 10 votes last year.

And although social conservatives consider the last legislative session perhaps the most successful in recent memory, the anti-abortion movement and religious right expect more from Republicans on restricting abortions. To get a sense of possible laws on the horizon, one only needs to look at the litany of anti-abortion policies Republicans have tried to pass in other states, from mandatory ultrasounds to personhood amendments.

How long can legislative leadership prevent the most conservative elements of the GOP from forcing the most controversial issues to the forefront? There are signs of leakage already: The nine legislators who proposed arresting federal officials for implementing the Affordable Care Act displayed a fervent devotion to conservative orthodoxy that cannot easily be tamed.

"I don't know what the Republicans are going to do," says Senate Minority Leader Chris Larson, D-Milwaukee. "You've got this governor trying to impersonate a moderate, pretending he didn't take all these hard right positions, and you have other members of the party who didn't get the memo." ___

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