143 million (projected) drops of red ink

There is both less and more that meets the eye in reports of the state’s projected $143.2 million budget deficit.

It is, first, a bit hysterical, not to mention hypocritical, for opponents of Gov. Scott Walker to bray about a projected budget deficit at the end of the 2011–13 budget cycle, 16½ months from now.

Remember that the previous governor and the party that controlled the 2009–11 Legislature mismanaged the state to a $2.9 billion GAAP deficit and a $3.6 billion structural deficit heading into the 2011–13 budget cycle. (The MacIver Institute compares this and the previous budget for those with short political memories.) And when the deficit in the 2009–11 budget was fixed by ending most of the collective bargaining rights state and local government employees have never deserved, Democrats’ reaction was (1) to deny that any deficit existed, and (2) to propose raising taxes.

This projected deficit totals all of 0.24 percent of the state’s $59.2 billion 2011–13 budget. (That right there shows how pathetic state finances are when a nine-digit budget hole doesn’t even total 1 percent of state spending. Those who don’t find that remarkable wrongly assume that government makes any positive contribution to the state’s quality of life.)

The shortfall is being blamed on lower-than-projected tax collections. That is remarkable in two senses — the $2.1 billion in tax increases the previous Legislature foisted on us was supposed to fix the state’s fiscal problems, and the 2011–13 budget does not contain significant income tax cuts. Those who assert that tax increases never bring in the revenue they’re projected to bring in have another piece of evidence in their favor.

Walker’s apparent answer is to use $25 million of its $140 million share of the national foreclosure settlement to plug into the projected budget hole. Someone on Facebook, who is (surprise!) a state employee, asked how that was different from Gov. James Doyle’s oft-criticized raid of state transportation funds to fill Doyle’s numerous budget holes.

The more apt comparison is to Gov. Scott McCallum’s use of tobacco settlement funds, which, like the foreclosure settlement, comes from financial sources outside Wisconsin. McCallum doesn’t deserve any sound-financial-management awards either, but Doyle’s use of funds generated within the state by drivers and truckers for transportation was far worse. (Not to mention illegal, in the case of his Patients Compensation Fund raid.)

For those concerned about that projected budget deficit, the state could fix it by cutting 2,017 state employees, each of whom cost taxpayers on average $71,000.

The other reality, however, is that the 2011–13 state budget was insufficient, since it did in fact increase spending, contrary to everything the Wisconsin left has told you.

The 2011–13 budget, like every budget before it — whether created by Republican or Democratic governors, and whether passed by Republican, Democratic or split-party-control Legislatures — was created using political math — that is, cash accounting — instead of Generally Accepted Accounting Principles. (A reader commented that the Internal Revenue Service requires that businesses with $5 million in revenue use GAAP accounting. That limit is about 0.0169 percent of annual state spending, which makes the state’s requirement of balanced budgets on only a cash basis literally insane.)

The first step to eliminating budget shortfalls is to create realistic budgets in the first place, budgets based on GAAP, not cash, accounting. As George Lightbourn of the Wisconsin Policy Research Institute puts it, “If our government made that one budget change, then any commitment to spend, no matter how far into the future, would have to be backed by actual money. … Revolutionary?  Hardly, since this is the same accounting standard that every local government and business in Wisconsin has learned to live with.”

A state budget based on GAAP accounting would have to be at least $3 billion smaller than the current state budget. Fiscally responsible legislators (a hard concept to grasp in this state, I realize) would have to make considerably more difficult decisions on what state government, and local governments as well, should and should not do. Should the state be spending tens of millions of dollars every year to buy land to take it off the tax rolls? Do we need the redundant State Patrol? Does a state of 6 million population require 3,120 units of government?

The state Constitution also needs to have permanent, nearly-impossible-to-bypass controls on spending and taxes as well, in addition to a statutory GAAP accounting requirement. The lack of spending and tax increase controls makes article I, section 22 of the state Constitution — “The blessings of a free government can only be maintained by a firm adherence to justice, moderation, temperance, frugality and virtue, and by frequent recurrence to fundamental principles” — impossible in practice. It also turns your state into a tax hell with unbalanced budgets.

2 thoughts on “143 million (projected) drops of red ink

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s