Budget to impact construction industry

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In signing the state’s 2013-15 budget bill Sunday, Gov. Scott Walker left unchanged a tax increase that is estimated to cost construction companies and other heavy users of the state’s unemployment fund millions of dollars in the coming years.

During hearings on the budget, lawmakers had inserted a provision that would make a series of reforms to the state’s unemployment-insurance system. The budget would have the heaviest users of the system, many of them construction companies, pay $32 million a year in additional taxes into the state’s unemployment fund starting in 2015, according to an estimate by the nonpartisan Legislative Fiscal Bureau.

While leaving that proposal unchanged, the governor did veto one unemployment –system reform, eliminating a provision having to do with the number of hours a person can work in a week and still draw partial unemployment benefits. Normally, a person can work no more than 32 hours a week and still claim partial jobless benefits through a former employer.

Before the governor’s veto, the budget would have had that limit reduced to 24 hours during weeks when there is a holiday. Walker decided to eliminate the change, he explained in his veto message, because he wants to make sure the proposal would comply with federal laws and regulations. He also said such a change should be introduced as a separate bill to the Legislature after being studied by the Department of Workforce Development and the Unemployment Advisory Council.

The latter council, an independent body composed of five business representatives and five members from labor unions, had once made recommendations for changes to the unemployment-insurance system that had been adopted virtually unaltered by the Legislature. But most of the changes included in the budget, and approved by Walker on Sunday, were rejected by the council in meetings this spring.

To compensate for the tax increase that will fall on heavy users of the jobless-benefits system, lawmakers have proposed letting $30 million in general tax money be used to pay off interest that will be owed to the federal government in the next two years. That interest is owed on loans the federal government made to Wisconsin to keep the state’s unemployment fund solvent during the recent recession.

The reforms would also allow the Department of Administration to make a loan of up to $50 million to prevent the unemployment fund from being in the red on Nov. 9, 2014. That date is important because a deficit then would result in a further decrease in a federal tax credit and cost employers an estimated $191 million in additional taxes in 2015.

The governor’s vetoes also:

• Modified a provision that would have $250 million cut from the state’s construction plans for the next two years. Walker’s veto message explains he supported reducing the amount of debt the state takes on, but said he wants to specify that cut come from projects that were newly added to the state’s to-do list during the current budget-writing session. Saying he objected to language in the bill, Walker vetoed a provision that would have $250 million also cut from the state’s 2007-09 construction plans.

The state’s Building Commission in March approved a construction budget that called for $1.14 billion in new borrowing. That money would help pay for a nearly $200 million replacement of the Wisconsin Department of Transportation’s Hill Farms headquarters on Madison’s west side and $97 million worth of projects for non-state agencies, such as a $21 million Family Justice Center in Milwaukee.

Members of the Building Commission have yet to decide how the $250 million will be cut. They have been looking for ways that will avoid harming the construction industry. One proposal would delay purchases of two University of Wisconsin residence halls for a savings of about $100 million.

• Eliminated a proposal requiring the Department of Natural Resources to sell at least 250 acres of productive agricultural land a year through 2020. The governor’s veto message explains he thought the required sales might force the department to part with the land at below-market prices.

• Eliminated a provision that specified that the proceeds from a sale of a state asset had to go to retire debt incurred by the agency that had overseen the asset that was sold. Walker’s veto message states that the governor thinks the Building Commission and Department of Administration should have the authority to use the proceeds to retire any of the state’s roughly $8 billion of debt.

The budget would give the Legislature’s Joint Finance Committee the final say on asset sales approved by the Building Commission and the Department of Administration. In a last-minute change to the budget, any proposed sale could not go before finance committee members without an explanation of the methods used to ensure the potential transaction was arranged in a transparent manner.

At the same time, the governor’s vetoes left untouched a number of proposals related to the construction industry. Among them were:

• Single-prime contracting. The budget would make single-prime contracting the state’s default system of overseeing construction projects worth $185,000 or more. Under that system, the state would have a direct relationship with a single contractor, which in turn would oversee the work of the various subcontractors employed on a job.

Wisconsin now defaults to a multiple-prime system, under which plumbing, electrical and mechanical contractors each have direct relationships with the state. Those in favor of the change have said it would simplify the task of overseeing public projects.

• Transportation projects. The budget would put nearly $6.4 into transportation projects over the next two years, about $1 billion of which will come from borrowing. Of that borrowing, about $300 million will go toward rebuilding the Zoo Interchange and $200 million for the Hoan Bridge, both in Milwaukee.

The budget also puts $67 million toward rehabilitating highways and $52 million toward maintaining county roads.

• Erosion control. The budget would have the Department of Natural Resources adopt uniform erosion-control standards for the state, meaning local governments could not adopt standards that were stricter or laxer. Under a last-minute change, the budget would allow local governments to adopt stricter standards to control storm-water runoff.

• Possible merger of licensing agencies. The budget would have a study conducted on whether the Department of Safety and Professional Services, which licenses many sorts of tradesmen, should be merged with the Department of Agriculture, Trade and Consumer Protection.

• Eliminate contractor registrations. The budget would eliminate the requirement that certain contractors pay a $115 fee every four years to be registered with the state. Proponents of the change have said contractors do not have to prove their competency in a certain trade to obtain the registrations and that most will still have to obtain a separate certification to work in the state.

• Lump-sum contracts. The budget would eliminate a rule that can sometimes cause sales taxes to be paid twice on materials bought for construction projects. Current law stipulates that contractors do not have to collect sales taxes from their customers for certain materials that are bought as part of “lump-sum contracts,” which list the total price of a project. In those instances, the contractors pay the sales taxes themselves.

But those materials are treated differently if they are listed separately on a “schedule of values,” a document that can be used to show the progress on a project up to a certain date. When those materials appear on such a schedule, contractors become responsible for collecting sales tax on the materials, even if they have already paid those taxes under the provision pertaining to lump-sum contracts.

• Increase the historic building rehabilitation tax credit. The budget would increase the rate of an income-tax credit provided for work to restore historic buildings from 5 percent to 10 percent. That increase is expected to cost the state $3.4 million in the next two years.

The governor signed the budget in Pleasant Prairie.