JIM DOYLE

GOVERNOR STATE OF WISCONSIN
P.O. BOX 7863, MADISON, WISCONSIN 53707-7863 (608) 266-1212 FAX: (608)
267-8983

WWW.WISGOV.STATE.WI.US

February 11, 2009

The Honorable Russell Decker The Honorable Mark Miller, Co-Chair
Senate Majority Leader Joint Committee on Finance 211 South, State
Capitol 317 East, State Capitol Madison, WI 53702 Madison, WI 53702

The Honorable Michael Sheridan The Honorable Mark Pocan, Co-Chair
Assembly Speaker Joint Committee on Finance 211 West, State Capitol
309 East, State Capitol Madison, WI 53702 Madison, WI 53702

Dear Senator Decker, Speaker Sheridan, Senator Miller and
Representative Pocan:

Our nation faces a severe economic downturn. Millions of jobs have
been lost, the stock market has dropped precipitously from its peak
and consumers have cut back on spending. Current economic conditions
are having a dramatic affect on state revenue forecasts, with nearly
every state forecasting large budget deficits in this year and the
next two years.

Wisconsin is also seriously affected by the economic downturn.
Department of Revenue and Legislative Fiscal Bureau forecasts have
projected declining revenue in this year and the next. The November
20, 2008, budget deficit forecast of $5.4 billion by June 30, 2011,
has now increased to more than $5.7 billion. This figure represents
over 18 percent of general fund appropriations.

As a first step toward investing in Wisconsin’s economy and improving
the state’s finances, we have been working together to develop state
economic stimulus and budget repair legislation. These discussions
have required each of us to make
compromises toward addressing these challenges. This compromise
legislation includes the following provisions:

Authorize the Department of Administration secretary to lapse or
transfer $125 million to the general fund, including $500,000 from the
Legislature, between fiscal years 2008-09 and 2010-11. This provision
will be used to reduce state operations and grant appropriations by
$38 million this year. The bill prohibits any reductions to highway
construction activities associated with this lapse authority.

Secure $900 million in new federal revenues over the biennium to
support a Medicaid rate increase for hospitals through implementation
of an assessment on hospital revenues. The new federal revenues will
help to reduce state taxpayer
support for Medicaid by over $300 million GPR in state fiscal years
2008-09 through 2010-11. In addition, provide targeted supplemental
payments to rural hospitals, adult level 1 trauma centers and
pay-for-performance initiatives.

Ensure clear legislative oversight and rapid deployment of federal
stimulus funding in support of job creation:

— Authorize the first $300 million of federal economic stimulus funds
for transportation projects. The bill includes a specific list of
projects that the Department of Transportation has identified as
“shovel-ready” for
implementation using federal stimulus funding. Additional federal
stimulus funds for transportation that are not contained in a bill
introduced at the request of the Governor will be reviewed and
approved by the Joint Committee on Finance through an expedited
process.

— Create a process for expedited review by the Joint Committee on
Finance of plans for allocating all other federal stimulus funding not
related to transportation and not included in legislation introduced
at the request of the
Governor.

Foster job creation and entrepreneurial development through new and
upgraded tax credits:

— Enhance the Accelerate Wisconsin tax credit for angel and venture
investors in support of start-up technology companies. Increase the
aggregate per business cap from $4 million to $8 million and the cap
on angel investments from
$1 million to $4 million; delete the per angel investment cap for an
individual business; expand eligibility to a broad array of leading
edge technologies and related processes, including clean energy and
nanotechnology; allocate
$500,000 annually for investments in nanotechnology businesses; allow
a one-time transfer of early stage seed credits to attract a much
larger group of potential investors; improve utilization of the tax
credits by authorizing the
Department of Commerce to prequalify the amount of creditable
investment allowed in each business; allow early stage seed credits to
be claimed against gross premiums tax; and allow more of the credits
to be claimed in the year the
investment is made. Starting January 1, 2011, increase the angel and
early stage seed investment tax credit annual allocations by $12.5
million each.

— Consolidate five existing tax credit programs (development zones,
enterprise development zones, agricultural development zones,
technology zones and airport development zones), increasing the
ability to target those credits to businesses that create jobs, invest
capital, provide training and retraining to new and incumbent workers,
and retain jobs in companies with corporate headquarters in Wisconsin.
Recognizing the need to support economic growth in rural areas and for
small businesses, the bill allocates a portion of the creditsfor these
purposes.

— Encourage the continued growth of Wisconsin’s agricultural economy
through the creation of two new income tax credits. First, the dairy
cooperative investment credit will allow members of a dairy
cooperative to claim a credit for
10 percent of the amount paid for dairy manufacturing modernization or
expansion expenses. Second, the meat processing facility credit will
allow meat processors to claim a credit for 10 percent of the amount
paid for meat
processing modernization or expansion costs.

Protect Main Street businesses by adopting the Main Street Equity Act,
which accepts standards from the national Streamlined Sales and Use
Tax Project to simplify sales and use tax provisions among state and
local governments. The standards also clarify that all prewritten
computer software packages are subject to the sales tax. Adoption of
this national model legislation will increase general fund tax
revenues by $9.4 million in fiscal year 2008-09 and $61.3 million over
the 2009-11 biennium. In addition, further protect Main Street
businesses by extending the sales tax to digital personal property if
the related tangible personal property is subject to the sales and use
tax. Incorporating digital products into the Main Street Equity Act
provisions is expected to increase general fund tax revenues by $10.9
million over the 2009-11 biennium.

Authorize combined reporting of corporate income. Combined reporting
treats corporations and their divisions, subsidiaries and affiliates
as a single entity for corporate income tax purposes. This is expected
to increase general fund tax
revenues by $27.7 million in fiscal year 2008-09 and by $187.3 million
over the 2009-11 biennium.
Provide $2.6 million GPR in fiscal year 2008-09 to provide job
training and retraining programs, including training in green building
and the installation of alternative energy systems.

Provide $1 million GPR in fiscal year 2008-09 to increase Workforce
Advancement Training Grants awarded by the Wisconsin Technical College
System. This program enables small, medium and large businesses to
receive short-term, customized training services from Wisconsin’s
technical colleges providing the state’s workers and employers with
the competitive edge they need to be successful in a global economy.
The additional funding will be allocated to advanced
manufacturing skills training with a priority to welding.

Increase the fiscal year 2008-09 allocation under the Temporary
Assistance for Needy Families (TANF) program for direct child care
services by $20,384,400 to address a projected shortfall in funding
for state child care subsidies. Fiscal year 2008-09 child care
subsidies are expected to exceed original 2007-09 biennial budget
estimates by an estimated 6 percent.

Increase the appropriation for federal block grant aids received under
the Temporary Assistance for Needy Families (TANF) program by
$47,175,000 in fiscal year 2008-09 to reflect the receipt of a TANF
contingency fund supplemental grant.

Allocate $500,000 GPR in fiscal year 2008-09 to the Department of
Children and Families to implement a system to monitor child care
attendance in licensed child care centers. Significant concerns have
been identified regarding reimbursement of child care providers for
children who are not receiving child care or who have parents that may
not be legitimately employed.

Provide $337,500 FED in fiscal year 2008-09 to fund an additional 5.0
FTE positions for the program integrity unit in the Department of
Children and Families. This unit is responsible for ensuring that
parents and providers receiving
state child care subsidies comply with state and federal statutes and
rules. In addition, the unit monitors billing and attendance activity
and implements overpayment prevention strategies. Additional resources
are needed to expand and
enhance state oversight of the subsidy program.
Increase the allocation under the Temporary Assistance for Needy
Families (TANF)
program for emergency assistance grants by $1 million in fiscal year
2008-09.

Emergency assistance grants are available to needy families with
dependent children to help keep their home. To be eligible, families
must be facing impending or actual homelessness related to the
inability to make mortgage, rent or utility
payments; or due to a fire, flood or other natural disaster. The
current economic
downturn increases the likelihood that more families will face a
homelessness crisis.

Expand access to capital for scientific, medical and technological
research by allowing the Wisconsin Health and Educational Facilities
Authority to issue federal tax-free bonds to finance projects and
outstanding debt related to research facilities.

Increase funding for the Medicaid program to offset higher than
projected increases in caseloads and to fund a prior period cost
settlement for the University of Wisconsin Hospitals and Clinics.

Provide a $200,000 grant in fiscal year 2008-09 for statewide
foreclosure education and assistance to tenants.

Ensure protections for tenants of properties under foreclosure by
requiring plaintiffs in a residential rental property foreclosure to
provide tenants with notices of foreclosure actions and providing
tenants with the ability to recover damages if notices are not given.
Provide tenants with the ability to retain residency for up to two
months after the sale of a foreclosed property.

Authorize the Wisconsin Housing and Economic Development Authority to
issue bonds and make loans for refinancing qualified subprime loans
for single-family residential mortgage loans made after December 31,
2001, and before January 1,
2008.

Modify the loan program administered by the Board of Commissioners of
Public Lands to expand the prepayment period for local government
borrowers; increase access to funds for counties wishing to improve
energy efficiency; and clarify conditions under which a school
district may receive short-term loans.

Increase the regulation of foreclosure reconveyances, foreclosure
purchasers and
foreclosure consultants. Specify penalties for violation of provisions
by foreclosure
purchasers, authorize courts to order punitive damages and allow the
foreclosed homeowner to bring action for damages. Specify actions by
foreclosure consultants that are violations, and the forfeiture and
fine amounts for violations.

Comply with the federal Secure and Fair Enforcement for Mortgage
Licensing Act of
2008 by conforming to certain nationwide standards for mortgage loan
originators,
including their registration through the National Mortgage Licensing
System and Registry. In addition, establish minimum annual fees for
loan originators and loan solicitors.

Provide $4 million GPR to the Wisconsin Housing and Economic
Development Authority to establish a loan loss reserve fund that will
leverage private investment in a single-family residential
first-mortgage refinancing program, including
refinancing of single-family residential first mortgages.

Suspend the general fund statutory balance requirements for fiscal
year 2008-09 in order to adopt the economic stimulus legislation and
reflect anticipated action in the biennial budget bill that will
address the remaining deficit.

Taken together, the $125 million cut in state spending, revenue
enhancements and investments proposed in this bill will reduce the
estimated general fund deficit by over $700 million by the end of the
2009-11 biennium. Provisions in the bill will reduce the general fund
deficit in the current year (fiscal year 2008-09) by approximately
$167 million.

The following table demonstrates how the proposed economic stimulus
legislation will improve the general fund condition for fiscal year
2008-09, beginning with the deficit identified in the January 29,
2009, Legislative Fiscal Bureau memo regarding generalfund revenue and
expenditure reestimates. The remaining deficit for fiscal year
2008-09 and the 2009-11 biennium will be addressed in my budget
recommendations
for the 2009-11 biennium.

Fiscal Year 2008-09 General Fund Impact
($ in millions)

2008-09
Estimated June 30, 2009, Balance (Legislative Fiscal Bureau) -$593.8

Current Law Required Ending Balance 65.0

Shortfall (excluding statutory balance) -$528.8

State Agency Lapses and Transfers (amount allocated to FY09) $38.0

Hospital Assessment 78.5

Combined Reporting 27.7

Temporary Assistance for Needy Families (TANF) Provisions 22.5

Main Street Equity Act and Related Provisions 9.4

Worker Training-Related Programs -3.6

Medicaid Changes and Other Transfers -1.0

Housing-Related Programs -4.2

Total of Actions $167.3

Remaining FY09 Balance (excluding statutory balance) -$361.5

I look forward to rapid passage of this legislation.

Thank you for consideration of this important measure.

Sincerely,

Jim Doyle

Governor

cc: Members, Joint Committee on Finance

Michael L. Morgan, Secretary of Administration

Bob Lang, Legislative Fiscal Bureau

David Schmiedicke, State Budget Director