Surplus or deficit? Depends on whom you ask

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Todd A. Berry
Saturday, January 7, 2012

Imagine selling your old car to make the monthly mortgage payment, or making a credit-card purchase while telling a family member you didn’t “spend a dime.”

In some ways, these are the kinds of actions taken by state officials of both parties since the 1990s in order to claim that Wisconsin’s general fund budget was balanced. The general fund is where almost all state taxes that pay for state programs are deposited.

The problem with this approach to budgeting is readily apparent. Relying on one-time funds, delaying bills, or borrowing money were all maneuvers that paid for ongoing state programs with temporary dollars. Lawmakers “balanced” budgets in the short run but created problems in future budgets.

A better and more honest look at state finances is found in Wisconsin’s official financial statements released each year before Christmas by the state controller. Because these must be prepared according to rules of the accounting profession, they can’t use accounting gimmicks or timing tricks.

The differences between state budgets and financial statements for the same year have plagued Wisconsin for more than a decade. While state budgets were ostensibly balanced, official financial statements showed general fund deficits growing from $830 million in 1999-2000 to almost $2 billion in 2003-04 and to $2.99 billion by 2010-11. Contrast this with the final version of the 2010-11 budget that showed an $86 million surplus.

All this talk of state deficits and surpluses no doubt leaves taxpayers confused.

“I thought state law required a balanced budget. I thought we enacted an austerity budget last summer,” some are likely to say.

There is no question that the 2011-13 state budget is a tight and painful one that cuts most major programs, except Medicaid, but it will not erase the deficit reported on state financial statements next year at this time. It will, however, accomplish something not done since the mid-1990s: Lay the foundation for a new state budget (in 2013) that does not first require paying off budget-balancing IOUs from the prior year.

What this means according to state budget experts is that, entering the 2013-15 budget period, Wisconsin would have no “structural deficit” for the first time since the mid-1990s. Lawmakers would be able to prepare a budget with an eye to future opportunities, rather than past obligations.

Before state legislators and lobbyists begin planning future spending increases, however, they would be wise to remember that underlying state fiscal problems remain. State financial statements will still have large general fund deficits that require repair.

As a bipartisan state legislative committee (on which I served) urged 10 years ago, now is the time to begin scaling back the deficits on these financial statements. Those evaluating state bonds will respond with higher ratings, and markets will respond with lower interest rates that the state must pay. Then Wisconsin citizens can say that state finances are truly “back on an even keel.”

Todd A. Berry is president of the Wisconsin Taxpayers Alliance, 401 N. Lawn Ave., Madison, WI 53704-5033; phone (608) 241-9789; website www.wistax.org. The alliance, founded in 1932, is the state’s oldest and most respected private government-research organization. It aims to improve Wisconsin government through citizen education. Nonprofit, nonpartisan, and independently funded, WISTAX is not affiliated with any group—national, state, or local—and receives no government support.

Last updated: 7:35 pm Thursday, December 13, 2012

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