- Associated Press - Tuesday, July 11, 2017

MADISON, Wis. (AP) - Wisconsin’s state budget impasse just got $51 million harder to solve thanks to the tax increases that neighboring Illinois enacted to finally pass its spending plan, state lawmakers learned Tuesday.

The hit to Wisconsin comes because of higher income tax credits that people who live in Wisconsin and work in Illinois will be able to file, the nonpartisan Legislative Fiscal Bureau said. Wisconsin will also have to make higher payments to Illinois under an income tax reciprocity deal, the Fiscal Bureau said.

The bad news came as private talks among Republicans about how to plug a $1 billion road-funding shortfall showed few signs of progress. Republican legislative leaders and Gov. Scott Walker were scheduled to talk for the first time in two weeks on Wednesday.

Under the reciprocity agreement, people who live in Wisconsin but work in Illinois only file taxes in Wisconsin. The state then pays Illinois the difference of what would have been owed. Because taxes are going up in Illinois, the state’s payment under that deal will increase by more than $20 million, the Fiscal Bureau said.

The Illinois tax changes will also result in Wisconsin residents claiming $31 million more in credits for taxes paid in other states, the Fiscal Bureau said.

Republican leaders tried to put a positive spin on the news.

“We’ll make that up thanks to the influx of businesses and people moving from IL to WI,” Republican Assembly Majority Leader Jim Steineke tweeted.

Still, Wisconsin Republicans can’t reach a deal on passing their budget.

Senate Republicans continue to refuse to go along with Assembly Republicans’ call for higher gas taxes or vehicle fees to help pay for borrowing to keep road projects on track. Walker has promised to veto a gas tax increase, and last week said he’d be willing to lower borrowing by $200 million and ask the federal government for $341 million to help broker a deal.

Whether to increase revenue to help pay for roads - which Walker and Senate Republicans oppose - has been the biggest impediment in the nearly two-week delay in reaching a budget deal. Wisconsin, along with Rhode Island and Connecticut, are the only states that had a July 1 deadline and have not yet passed a budget.

The funding of Wisconsin state government operations, like prisons, Medicaid, the University of Wisconsin and K-12 schools, will continue at its current levels until a new budget is signed into law.

Senate Republicans initially said they wanted to borrow $850 million for roads, but last week Senate Majority Leader Scott Fitzgerald said it was down to $750 million.

“We’re whittling that down, it may even be less than that,” Fitzgerald said Tuesday, declining to say how much less.

But Assembly Speaker Robin Vos said without a way to pay off the borrowing, any higher amount will run into opposition from Assembly Republicans.

“It’s not the level of borrowing, it’s the ability to pay off the credit card,” Vos said. “The most common sense compromise to me is a little bit of borrowing and a little bit of spending to pay for it.”

Vos reiterated that Assembly Republicans would vote to keep the roads budget flat rather than approve more borrowing without revenue increases. Doing that could result in major delays in ongoing work on major interstate projects, particularly in southeast Wisconsin.

Fitzgerald said he hopes to continue negotiating with Assembly Republicans and not take the unprecedented step of having the Senate pass its own spending plan. But he also said there’s little left for Senate Republicans to discuss.

“I know after next week it’s going to be hard to maintain the illusion that the Senate caucus is in the room trying to develop further strategies because we’re running out of things to do,” Fitzgerald said.

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Follow Scott Bauer on Twitter at https://twitter.com/sbauerAP

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