If the country goes over the so-called "fiscal cliff" in January, it could mean a loss of several hundreds of millions of dollars in tax revenue to Wisconsin and force Gov. Scott Walker to propose a more austere state budget than he hoped.
For now, Walker is taking a wait-and-see approach. His budget isn't due to be released until February - and by then President Barack Obama and congressional Republicans may reach a deal to avoid an automatic series of spending cuts and tax increases scheduled to take effect at the start of the new year.
The lack of a deal would result in the loss of hundreds of millions of dollars to the state due to a drop in the gross national product and personal income, said Bob Lang, director of the nonpartisan Legislative Fiscal Bureau.
The Legislative Fiscal Bureau will release its economic forecast in mid-January. Those numbers will be used by the Legislature when building the budget for the next two years.
Lang said his office hasn't done an estimate on what effect going over the cliff will have, but he said it has to translate into "several hundreds of millions in tax revenues."
But Walker said Wednesday that he was not preparing an alternate budget in case the country goes over the cliff.
"What we have in Washington, every day, every hour, is pretty fluid there. So it's pretty hard to prepare because I don't think we really know," Walker said. "Each of the major proposals that were on the table yesterday were largely dollar amounts without a lot of specifics attached to them. So it's hard to prepare without knowing substantively what's in each of the plans."
Democratic state Rep. Jon Richards said Walker and Republican leaders should be pressuring fellow conservatives to strike a deal instead of putting the state and country in jeopardy.
Walker joined with five other governors who traveled Tuesday to Washington to meet with Obama and talk about the implications of going over the cliff. Walker said they told Obama that they hoped the eventual solution would not harm state and local governments.
"The biggest fundamental concern I have is about what it does to the economy and what unintended consequences there are," Walker said of the fiscal cliff and its possible solution.
Walker's administration reported on Nov. 20 that it was poised to end the current two-year budget cycle in June with a net $283 million surplus, in addition to making a $108 million surplus into its rainy day fund.
However, the report warned about uncertainty over the fiscal cliff. It did not put a dollar amount on what not reaching a deal would have on the state budget.
The state's reserves could be tapped if necessary to deal with a loss in revenue due to the fiscal cliff problem, said incoming Republican Assembly Speaker Robin Vos.
Still, the state is in a lose-lose situation, Vos said in a statement.
"No matter what happens at the federal level, there will be a negative impact on Wisconsin," Vos said. "If we hit the fiscal cliff, we'll see massive spending cuts, and if President Obama gets his way, we'll see higher taxes."
Lang said his guess that no deal could mean a loss of hundreds of millions in tax revenue is based on national economic forecasts that show gross national product and personal income will take a hit if the nation goes over the fiscal cliff.
Global Insight's most recent economic forecast, on which Walker's administration based last month's budget projection, assumed 1.9 percent GDP growth in 2013 followed by 2.8 percent growth in 2014. However, if the country goes over the fiscal cliff that projection called for a drop in GDP of .05 percent in 2013 followed by just a 1.3 percent increase in 2014.
Similarly, the forecast predicted 3.9 percent personal income growth next year followed by 4.9 percent the second year. But without a solution to the fiscal cliff, personal income growth is predicted to be just 1.5 percent followed by 2.7 percent.
Wisconsin's economy tends to closely mirror what is happening nationally, so the real question is what happens to the manufacturing sector and unemployment as people have less money to spend, said Todd Berry, president of the nonpartisan Wisconsin Taxpayers Alliance.
"The biggest impact will be the spending cuts and tax increases that would cause a recession, which in turn is going to mean higher unemployment in Wisconsin, less manufacturing activity and less tax activity," Berry said.
Assuming no deal can be reached, Walker would be forced to either find more revenue to make the state's budget balance or cut spending, Berry said. A third option would be to put off paying for new proposals until the next budget, on the hopes that more tax revenue is available by then, he said.
Walker will release his next two-year state budget covering July 2013 through June 2015 in February.