Sections 1286Lm, 1311ia, 1312o and 9341 (4k)
These sections eliminate the state income tax deduction for adoption expenses and create instead a nonrefundable adoption tax credit that would be available to anyone who is eligible for, and claims, the federal adoption tax credit. The credit would be allowed for qualified adoption expenses that exceed the amount of the federal credit for which a claimant is eligible and claims. The state credit may not exceed $5,000, but unused portions of the credit may be carried over to future tax years for up to five years.
I am vetoing this provision because the state already provides adoptive parents with a tax benefit through our adoption expenses deduction. The estimated $7,500,000 annually saved through this veto will be used to fund education and provide property tax relief, offering further benefits to both adoptive parents and their children.
4.
Health Savings Accounts
Sections 1432m, 1450g and 9341 (5m)
These sections update state tax references to the internal revenue code in order to conform to federal income tax exclusions and deductions for health savings accounts (HSAs). Under the federal HSA provisions, an eligible individual covered by a high-deductible health insurance plan may make pretax deductions to an HSA to cover qualified medical expenses. These provisions would first apply to tax year 2005.
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I am vetoing these provisions on HSAs, as I have in the past, because HSAs are inextricably linked to high deductible medical insurance and, therefore, could decrease employer-sponsored insurance coverage. Additionally, HSAs are only viable for persons with higher incomes. Without a clear and demonstrated benefit for the residents of this state as a whole, I believe these provisions should only be taken up in the context of a larger debate on a comprehensive health care package that would effectively and affordably address the health care needs of seniors, children, and middle- and low-income families.
While I have vetoed these provisions, I am signing a tax cut for individuals paying health insurance premiums. This tax cut will help those whose employers do not contribute to health insurance premiums, meet the immediate cost of health care and will improve access to health insurance for persons who have no employer.
5.
Sales Tax on Services Provided by Temporary Help Companies
Sections 1632n and 9441 (7w)
These sections exempt taxable services provided by temporary help companies [as defined in s.
108.02 (24m)] from the state sales and use tax, as long as the client controls the means of performing the services and is responsible for the satisfactory completion of the services.
I am vetoing this provision because it does not take effect until July 1, 2007, and, thus, does not need to be decided in the context of this budget.
6.
Individual and Corporate Income and Franchise and Insurance Premiums Tax Credit for HIRSP Assessments
Sections 1311i, 1312r, 1319m, 1354m, 1385h, 1385p, 1386m, 1406m, 1428k, 1428p, 1474q, 1474s and 1686f
These provisions create a nonrefundable credit under the insurance premiums tax, the corporate and individual income and franchise taxes, and the tax on investment income paid by life insurance companies. The credit is equal to a percentage of the amount of assessments paid by the insurer during the taxable year under the Health Insurance Risk-Sharing Plan (HIRSP). The Department of Revenue and the Office of the Commissioner of Insurance must set the credit percentage for each year so that the annual cost of the credit is as close as practicable to $2,000,000 in fiscal year 2006-07 and $5,000,000 in each fiscal year thereafter. Unused credits may be carried over for up to fifteen years.
I am vetoing this provision because it is an unaffordable benefit to HIRSP insurers. Revenue associated with this credit is more effectively used to adequately fund public schools and deliver property tax relief.
7.
Withholding from Nonresident Members of Pass-Through Entities – Technical Veto
Section 1431
This section establishes rules that require corporations, trusts, limited liability companies, etc., that are treated as pass-through entities for federal tax purposes and that have Wisconsin income allocable to nonresident partners, members or shareholders to pay withholding taxes. However, the language does not provide a method for computing withholding from the income attributable to individuals and corporations.
I am partially vetoing this section to conform the language to the original legislative intent of the provision. If the veto is not made, the state will not collect some portion of the $7,500,000 in fiscal year 2005-06 and $5,000,000 in fiscal year 2006-07 that was included in my budget proposal and approved by the Legislature.
8.
Definition of Taxable Sales – Technical Veto
Section 1518m
This provision was among a series of changes I recommended to conform to the Streamlined Sales and Use Tax Agreement. The Joint Committee on Finance decided to remove the proposal from the budget. However, due to a drafting error, this section of the proposal remained in the bill. I am vetoing this section to conform the bill to the record of legislative intent.
REVENUE
9.
Lottery Vending Machine Placements
Section 2423v
This section requires the Department of Revenue to place lottery ticket vending machines in certain airport terminals and Milwaukee Amtrak stations, subject to approval by each location's administration and the availability of qualified lottery retailers at each location.
I am vetoing this section because it is unnecessary. The department is already in discussions to place lottery machines at a number of airports around the state.
SHARED REVENUE AND TAX RELIEF
10.
School Levy Tax Credit
Section 1717
This section defines the annual appropriation for the school levy tax credit for 2005, 2006, 2007 and beyond.
I am partially vetoing this section to set a higher appropriation for the school levy tax credit beginning with property tax bills mailed December 2006. My partial veto has the effect of setting the appropriation amount at $593,050,000 beginning in 2007 and continuing thereafter.
While I cannot restore all of the funding that I originally proposed, this partial veto does help property taxpayers by providing an additional $73,745,000 in school levy tax credits beginning with tax bills mailed in December 2006. Since this partial veto affects payments made in July 2007, there is no increase to the appropriations for the 2005-07 biennium.
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11.
Levy Limit for Counties and Municipalities
Sections 1251c, 1254m, 1257, 1258, 1258m, 1259, 1260b, 1260c and 9435 (4) [as it relates to charter sport fishing boats]
These sections set limits on the percentage by which counties' and municipalities' property tax levies can increase in a given year. With certain exceptions and adjustments, the levy limit is equal to the percentage increase in a political subdivision's equalized value that is due to net new construction. Exceptions and adjustments are made for tax increments, debt service, service transfers, annexations, children with disability education boards, first-class city school levies, referendum-approved spending increases and town meeting-approved spending increases. These sections also set forth a penalty for exceeding the levy limit, and sunset it after three years.
I am partially vetoing these sections to make it more responsible and fair to all communities while still holding down property tax increases. My partial vetoes affect the provision in a number of ways.
First, the minimum levy limit for all communities will be set at two percent per year. Thus even lower-growth communities will have the option of raising their levy by a modest two percent per year, which will allow them to at least partially keep up with inflation. Higher-growth communities will still have the ability to raise revenues up to the limit dictated by their growth due to new construction. The Legislature's proposal would have severely harmed lower- or negative-growth communities in Wisconsin. This partial veto corrects that inequity.
Second, my veto eliminates the requirement that new debt be authorized by a referendum in order for debt service on that new debt to be excluded from the levy limit calculation. Instead, new debt simply needs to be "authorized" and backed by the full faith and credit of the political subdivision. Exempting new debt service allows communities to make investments and undertake capital projects that are essential for economic growth. Additionally, without the exemption, bond houses would be reluctant to underwrite bond issuances by municipalities and counties, which would hurt, for example, the city of Milwaukee's issuance of operating notes.
Third, the levy limits under my veto would sunset January 1, 2007, after the 2005 and 2006 property tax bills have been mailed. I object to a three year duration for the limits because I do not believe we should set levy limits beyond the current biennium for which we are budgeting. We cannot know beyond the two year budget timeframe what the state's commitments to shared revenue and school aids will be and cannot ask local governments and schools to freeze their taxes without the guarantee that they will receive the state aid they need to maintain their services.
To partially veto the provision to a two year sunset, I had to strike sections dealing with comprehensive planning provisions, birth certificate issuance fees, charter sport fishing boats and shared revenue utility aid payments. The shared revenue utility aid payment revision and the repeal of the comprehensive planning provisions are already struck in separate vetoes. The birth certificate issuance fees and charter sport fishing boats revisions should be reconsidered under separate legislation.
The duplicate birth certificate fee increase would have supported recommendations from Wisconsin's Call to Action to Prevent Child Abuse and Neglect. I remain strongly supportive of Call to Action priorities including: child sexual abuse prevention, family mental health programming and family support programming. To ensure the state moves forward in these critical areas, I am directing the Department of Health and Family Services secretary to work with the Children's Trust Fund to initiate Call to Action pilot projects in Milwaukee County. In addition, I support separate legislation to permanently increase the duplicate birth certificate fee to generate program revenue that will support implementation of Call to Action recommendations.
With these partial vetoes, levy limits are improved. The levy limits hold down property tax growth while still allowing all communities at least a small increase to keep up with inflation and rising costs. In addition, the duration of the limits is properly aligned with the biennial state budget to make sure that we can continue to make our commitments to local governments.
These limits, when combined with my vetoes to increase state aid for property tax relief (see Item #10 and Education and Workforce Development Section, Public Instruction, Item #4), will freeze property taxes on an average value home for the December 2005 bills and reduce taxes on an average value home for the December 2006 bill. This responsible freeze is made possible through an improving Wisconsin economy, savings from state government efficiency measures and cuts to state programs.
12.
Shared Revenue Utility Aid – Distribution Formula
Sections 93m, 1258m, 1260b, 1260c, 1260p, 1260q, 1260t, 1473b, 1473d, 1473e, 1474p, 1705b, 1705c, 1705d, 1705e, 1705f, 1705g, 2097m, 2097n, 2098m and 9141 (1n)
These provisions change the method of computing utility aid payments to municipalities from a nine-mill calculation to a capacity-based calculation based on capacity in megawatts. Additionally, they extend the property tax to general structures and substations, but allow companies that run these facilities to deduct the tax paid against their annual state license fee costs. The provisions also change the method of calculation for payments of impact fees for high-voltage transmission lines; the calculation would be based on net book value instead of original cost. Finally, they allow that mitigation payments paid from the Oak Creek Power Plant to adjoining municipalities may be recoverable via future rate increases.
I am vetoing all of these provisions. There is limited policy justification for these changes and they make financial commitments in future biennia. Since, the distribution formula changes do not begin until the 2007-09 biennium this issue is more appropriately addressed in the next budget.
Portions of these provisions were also struck in the Levy Limit veto (see Item #11) to secure a sunset date for the limits.
