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WI State Budget: “Surplus or Deficit? Depends on Whom You Ask”

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John Eyster
February 21, 2012

WI State Budget: “Surplus or Deficit? Depends on Whom You Ask"

TODAY there is a significant vote in our WI State Assembly which would start the ball rolling to a CONSTITUTIONAL AMENDMENT to REQUIRE the State of WI to use the Generally Accepted Accounting Practices (GAAP)! Assembly Joint Resolution 100 is the legislative document.

GOOD NEWS: Such an amendment would prevent lawmakers from passing a budget that causes or increases a deficit and, icing on the cake, it would require the state to set aside at least the first 10% of revenue growth each year to reduce the states $3 billion GAAP deficit.

BAD NEWS: Many argue that it is NOT functional to put this kind of FISCAL POLICY into our Constitution. IF you want to read an informative blog statement supporting GAAP, but opposing Constitutional Amendment.

BOTTOM-LINE: I think WE THE PEOPLE of WI need to DEMAND that elected legislators and our Governor make GAAP the accounting policy of our state with all deliberate speed. What do YOU think?

GOOD NEWS: Such an amendment would prevent lawmakers from passing a budget that causes or increases a deficit and, icing on the cake, it would require the state to set aside at least the first 10% of revenue growth each year to reduce the states $3 billion GAAP deficit. BAD NEWS: Many argue that it is NOT functional to put this kind of FISCAL POLICY into our Constitution. IF you want to read an informative blog statement supporting GAAP, but opposing Constitutional Amendment, I suggest Jon Peacock’s “Assembly Votes Tuesday on Putting Detailed Fiscal Policy into the State Constitution.”

BOTTOM-LINE: WE THE PEOPLE of WI need to DEMAND that elected legislators and our Governor make GAAP the accounting policy of our state with all deliberate speed. WHY?

WE THE PEOPLE of WI NEED to know the real truth as to the bottom-line of our state’s fiscal situation. It is true that WI governors of both parties have taken full advantage of the cash flow accounting system to manipulate structural deficits while claiming to meet the CONSTITUTIONAL REQUIREMENT of a “balanced budget” for the State of WI.

I share with citizens of WI who have been disappointed that Scott Walker has NOT followed up on his campaign promise to IMPLEMENT GAAP for the 2011-13 budget. WHY NOT?!

The “cash flow” accounting system used by our State of WI is HIGHLY SUSPECT when it comes to the WHOLE TRUTH and fulfilling the CONSTITUTIONAL REQUIREMENT of a “balanced budget.” I keep wondering WHY we do NOT hear the business community advocating more aggressively for the state to use the GAAP (Generally Accepted Accounting Principles) which is the gold standard used throughout the private sector. I am NOT an accountant – I read the Wikipedia feature to gain information and perspective, you can use this link to read that article, “Generally accepted accounting principles.”

I do KNOW that a major issue which I learned immediately upon becoming a licensed lobbyist in the State of WI when I became the Legislative Liaison for the School District of Janesville in October 2000 was the “shell game” which WI politicians of both parties had been playing with the state’s fiscal reports. I was among WI citizens who thought “balanced budget” meant exactly what it said, “BALANCED.” NOT!

WI has been playing the SHELL GAME with STRUCTURAL DEFICITS for decades! If you want to review WI and the other states in terms of the Constitutional and/or Statutory requirements for a REAL “balanced budget,” I suggest you take advantage of the documentation posted by the National Council of State Legislatures (NCSL), “State Balanced Budget Provisions 2010.” The chart shows that WI has a CONSTITUTIONAL requirement for the Governor to submit a “balanced budget” and the legislature to pass a “balanced budget.” But the zinger is that there is NO provision to PROHIBIT the carry over of deficit. YOU tell me how this works, please. IF the Governor submits a “balanced budget” and the legislature passes a “balanced budget,” WHERE does the DEFICIT come from?! Yes, revenues do NOT pay all the bills provided for in the “balanced budget.”

Todd Berry, President, Wisconsin Taxpayers Alliance, has a very informative analysis in his blog report, “Wisconsin’s other deficit,” which was posted on January 9, 2012.

Todd’s report provides this perspective, “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.”

He continues, “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.”

If you want a careful review of the “cash flow” vs. GAAP accounting methods with perspective of Governor Walker’s promises (talk-talk) and actual actions (walk the talk?), I found the following sources very informative and helpful for me.

"Walk-O-Meter" – Milwaukee Journal Sentine Update – November 16, 2011.

IF you want to review the specifics on the Walker campaign website, check, “Government Reform.”

I note that Walker stated the he would, “Require use of accepted accounting principles to balance all state budgets” and continued "require the use of generally accepted accounting principles (GAAP) to balance every state budget, just as we require every local government and school district to do."

Now for the update review by Dave Umhoefer on November 16, 2011, use this link, "Required use of GAAP."

“Even critics are not talking about the ball being dropped on this one.

“In his unsuccessful campaign for governor in 2006, Scott Walker said then-Gov. Jim Doyle told a ‘world champion’ lie in claiming the state budget was balanced.

“Walker said it actually was out of balance by $2.1 billion if you keep the state's books as other governmental units do -- using what are known as Generally Accepted Accounting Principles (GAAP).

“In 2010, when he ran to succeed Doyle, Walker made an explicit promise, on his campaign website: To ‘require the use of generally accepted accounting principles (GAAP) to balance every state budget, just as we require every local government and school district to do.’"

Umhoefer notes, “The state budget, under the Wisconsin constitution, must be balanced. But the cash accounting method the state uses allows gimmicks to bring the budget into balance. For instance, the state has in years past shifted payments to local governments into the next fiscal year in order to make the budget appear balanced in the present, said Robert Lang, director of the non-partisan Wisconsin Fiscal Bureau."

His reports, “There's a chart every two years in the state budget demonstrating the bottom line under GAAP. The chart in the Walker administration's Budget in Brief shows that the 2011-13 budget was not close to balanced by that standard.

“In fact, the document shows that based on GAAP accounting, the state would have been left with a deficit of $3 billion by 2012-13 under Walker's budget. That compares to the $2.9 billion GAAP deficit he inherited at the end of Doyle's term, the state's financial statements show.

“The governor's office told us to judge this promise based on the next budget -- for 2013-15. Walker, though, promised to balance ‘every’ state budget on the more stringent GAAP principles. He did not do that in his first budget.

“We rate this as a Promise Broken.”

The Milwaukee Journal Sentinel published an informative news article on January 22, 2012 which I suggest for more information and perspective, “Does Wisconsin have a budget deficit? It depends on accounting method used”.

Jason Stein grabs our attention, “Gov. Scott Walker's administration has touted for months its efforts to balance the state budget, but now it also has acknowledged a significant way in which the budget isn't balanced.

“To keep the possibility alive of making further cuts to state health programs, the Walker administration quietly certified to the federal government on Dec. 29 that the state had a deficit.”

So, the incisive question, “How can the Walker administration say that the 2011-'13 state budget is both balanced and in deficit?”

I urge that MORE of the TRUTH is stated in Todd’s blog, “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.”

He warns, “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.” Believe it or not, we have LARGE GENERAL FUND DEFICITS!

Why was the bipartisan state legislative committee recommendation 10 years ago NOT implemented?! I myself wish the State of WI was required to report according to the GAAP standards. Therefore, I agree with the Wisconsin State Journal’s editorial published on January 24, 2012, “Aim for higher budget standard.”

Do NOT miss reading Todd Berry’s report, “Surplus or Deficit? Depends on Whom You Ask.”

I HOPE WE THE PEOPLE of WI demand that our legislators and Governor implement GAAP with all deliberate speed. I do NOT think we want the straight-jacket of a CONSTITUTIONAL AMENDMENT. What do YOU think?

REMINDER: Today is PRIMARY ELECTION DAY! Important primary for Rock County Judge. Remember your PHOTO ID to vote today.

Here we go…

Mr. E.



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