About a subject that comes up in this blog, PolitiFact reports:

Dale Kooyenga is a certified public accountant, though he says if he’s at a party, “accounting is not on my top 10 list of fun things to talk about.” But as a Republican member of the Assembly, Kooyenga is plenty happy to discuss the accounting arts as part of the “CPA Caucus.”

When the group dug into the University of Wisconsin System’s books and publicized what members considered an overly large reserve fund, Gov. Scott Walker and GOP lawmakers wound up reducing the system’s budget increase.

As a result, when Kooyenga talks accounting at the Capitol, people listen.

Even when — perhaps especially when — he’s commenting on something as dry as Wisconsin’s poor national ranking on budget deficits as measured by “generally accepted accounting principles.”

Those principles, known as GAAP for short, are a core issue when it comes to how state government spends tax dollars.

Kooyenga says adopting the principles would rule out “games,” “deceptive accounting practices” and “gimmicks” that hold back the state’s credit rating and enable lawmakers to saddle future generations with unsustainable financial obligations.

On Sept. 18, 2013, Kooyenga cited GAAP after hearing a state investment board official laud the fully-funded status of the state pension fund in testimony before the Legislature’s Joint Committee on Finance.

“Before we applaud ourselves, there’s a reason that Wisconsin has a 100 percent  funded pension system but we have the fourth-highest GAAP deficit in the country,” Kooyenga said, mentioning a couple of the aforementioned accounting gimmicks. “So I hope we can work on that over time — which we have.”

He concluded: “We’ve used GAAP accounting here in this building the last two years.”

That last phrase is worth checking, because the back-and-forth over budgets is heating up as we approach the 2014 gubernatorial race.

Gov. Scott Walker actually campaigned on GAAP as an issue in 2010, contending that then-Gov. Jim Doyle had falsely claimed the state’s budget was balanced. He promised to balance the budget not only by the usual Madison standard, but also under the GAAP scorecard — and to do it in every budget, just as local units of government do. …

Lawmakers and the governor would have to cut $2 billion to $3 billion more from the budget to fully balance under the more stringent GAAP standards. That $2 billion to $3 billion represents the “GAAP deficit.” And it’s been in that range most years since 2002.

So, how has GAAP been applied in recent years?

Talk of change aside, the fact remains that neither party and no governor — including Walker — has balanced the budget without a GAAP deficit since the state started tracking it in 1990.

We gave Walker a Promise Broken when his first proposed budget (2011-’13) not only left a GAAP deficit intact, but increased the size of it, to $3 billion. The governor’s second budget (2013-’15) went even further the other way, estimating a 29 percent increase in that deficit.

Those facts put Kooyenga’s claim into a hole right off the bat.

Neither budget was prepared using GAAP or balanced by those principles. And Kooyenga supported both budgets.

We spoke with Kooyenga and checked the long history of GAAP deficits and found an element of truth in his claim, which is vague enough to leave it open to some interpretation.

Kooyenga referred to the “last two years,” 2011 and 2012. That coincides with his first two years in office and with Walker’s first two-year budget.

Looking just at the final adopted version of that budget, it turns out that some tangible GAAP progress was made. That’s mainly because after Walker submitted his spending plan, a new revenue estimate gave lawmakers another $600 million to play with.

Lawmakers chose to use a big chunk of the windfall to pay some big bills left behind from Doyle’s days — a move that cut significantly into the GAAP deficit.

We now know, based on actual results, that the first year of that budget (2011-’12) saw nearly an $800 million drop in the size of the GAAP deficit. It was the first drop in eight years, though it still left a long ways to go to be fully balanced under GAAP.

As for year two, we won’t know the results until the books are closed on 2013. But experienced forecasters in the independent Legislative Fiscal Bureau and at the Wisconsin Taxpayers Alliance say the GAAP deficit is very likely to shrink again.

Walker and his Republican legislative allies have rejuvenated the state’s rainy day fund, and fund balances are running well into the black, both of which are positive factors in driving down the GAAP number.

That, Kooyenga told us, is in part what he was referring to when he said “we’ve used GAAP.”

The “we” in his statement, he said, refers also to the CPA Caucus.

That caucus has publicly tracked and reported how budget decisions look under GAAP. And Kooyenga went door to door in the Assembly to get bipartisan support for a constitutional amendmentrequiring the use of GAAP principles. That measure passed the Assembly in 2012 but died in the Senate.

Still, the state continues to use accounting maneuvers such as manipulating the timing of huge aid payments to local governments and schools into future fiscal years. Such moves help elected officials balance the budget on paper — but run afoul of GAAP. …

State officials, including Kooyenga and his caucus, have partially “used” significant moves to improve the GAAP deficit picture, and they have increased public awareness of it.

But those principles certainly haven’t been fully put to use; not even close. Most of the GAAP deficit remained after those two years. And left unmentioned by Kooyenga is that much of the progress in decreasing it is projected to be reversed in fiscal 2014 and 2015.

We rate his claim Mostly False.

Kooyenga in turn claims PolitiFact’s conclusions are Mostly False:

There were several statements in your article that testified to your lack of knowledge regarding GAAP.

For example, “Lawmakers and the governor would have to cut $2 billion to $3 billion more from the budget to fully balance under the more stringent GAAP standards.” That statement is not true, the GAAP balance represents the accumulation of disallowed accounting practices in prior budgets. This is why in the business world, companies that have done GAAP wrong previously “restate” prior period earnings as opposed to recognizing the correction in the current period. Your parent company employs CPAs with the experience to tell you how this works.

If I would have said that we have used GAAP accounting to pass a balanced budget the last two years that would have been one statement, but I did not say that. I stated that we (the CPAs) have used GAAP accounting the last 2 years (since we were in office).

Saying you’re using GAAP accounting does not mean you have a balanced budget – it simply means you are defining an authoritative body of rules to communicate what type of accounting standards you are using. Saying what accounting standard you are using is like saying what type of eye glasses you are wearing to measure the financial performance of an entity. Even if the GAAP deficit increased, I would still not be in error saying “we have been using GAAP accounting the last two years,” because such a statement does not say anything about having a GAAP profit, loss or breakeven – it just states what standard your using.

In addition, I shared with you previously that Wisconsin GAAP deficit actually has decreased from $2.9B (7/1/2011) to $2.2B (6/30/2012). The balance is also expected to decrease further as of 6/30/2013 which you corroborated in your article. It is impossible to decrease an accumulated GAAP deficit while realizing GAAP surpluses. The GAAP surplus means Gov. Walker and the Republicans have been fixing the mistakes of the past (i.e. Patient Compensation Fund). …

I have spoken to dozens of CPAs about your rating – they all agree your rating is simply wrong. you printed in today’s paper.

I’m not an accountant, so I don’t know whether Kooyenga is more accurate than the Journal Sentinel (which as far as I know doesn’t employ accountants as reporters either). Kooyenga links to state financial reports so readers more astute with accounting can tell themselves. That line about “your company employs CPAs” is rather embarrassing, though the CPAs Journal Communications, a publicly traded company, employs are employed for their company’s finances and not government’s.

It is not unfair to point out the state’s previous record as measured in GAAP finances. In the previous decade, only one-third of the states had GAAP-deficit budgets in any year of that decade. In the previous decade, only Wisconsin and Illinois had GAAP-deficit budgets in every year of that decade. It is not unfair to point out (as the Journal Sentinel did not) that state government requires every other unit of government in this state to balance its books by GAAP, but state government is required only to balance on a cash basis.

But PolitiFact wanted to paint Republicans generally and Kooyenga and the CPA Caucus specifically as hypocrites, even though the GAAP deficit (which Kooyenga says “represents the accumulation of disallowed accounting practices in prior budgets”) has dropped by one-fourth in two state budgets. This is where context is important, and where context doesn’t exist in PolitiFact.

Politics, remember, is the art of the possible. Since the Journal Sentinel, according to Kooyenga, got the definition of GAAP balance wrong, it’s hard to say that PolitiFact’s criticism of Kooyenga is correct. (If Kooyenga is to be believed, GAAP surpluses or deficits are the result of the accumulation of spending decisions. Given that the state had GAAP deficits every year in the 2000s, that makes logical sense.) It seems excessively picky to claim that the 2011–13 or 2013–15 state budgets aren’t GAAP-balanced when they clearly were more fiscally sound (as in no fund raids and a positive balance at the end of the budget cycle) than what Walker’s and Kooyenga’s predecessors enacted. Meanwhile, Kooyenga tried to get a constitutional amendment introduced to require GAAP-balanced budgets. It didn’t pass.

There is a simple way to eliminate this confusion, though I bet the Journal Sentinel editorial page doesn’t support it. That is to change state law (and, even better, put it in the state Constitution) to require GAAP-balanced state budgets. To balance the books of an institution that spends tens of billions of dollars every year on a cash basis is just plain nuts. Requiring GAAP-balanced budgets would prevent future Republican governors from creating structural deficits (as Thompson did), prevent future Democratic governors from illegally raiding specific-purpose funds to cash-balance the budget (as Doyle did), and prevent legislatures controlled by either party from spending more money than we’re projected to have, however that’s measured.

The better question for PolitiFact to ask is if state finances have improved in the past two budgets, as measured in the usual ways: did the state end the year in the black or in the red, and how — revenues exceeding spending, or such accounting tricks as fund raids. I doubt more than 1 percent of voters who are not accountants or business owners understand what GAAP accounting is. I think far more voters intuitively understand what good government finance is, and isn’t.