Road work gaps and GAAP deficits

George Mitchell on the state’s budget (cash) surplus and (GAAP) deficit:

“State controller sees red, while state officials see black”

So reads the headline on a newsletter issued last week from the apolitical (and indispensable) Wisconsin Taxpayer Alliance (WISTAX). The document offers important and under-reported information on the condition of the state treasury.

As debate on the state budget heats up, Governor Scott Walker and many legislative Republicans tout a record of “eliminated” deficits and a resulting “Reform Dividend.” Some suggest the state’s general fund is so flush it can be tapped to help address the transportation finance impasse.

How do the positive claims stand up when measured against information from the two most authoritative sources, namely, WISTAX and the nonpartisan Legislative Fiscal Bureau (LFB)?

You be the judge.

The WISTAX newsletter analyzes the state controller’s recently released Comprehensive Annual Fiscal Report for 2016.  Using the most meaningful assessment — one based on Generally Accepted Accounting Principles (GAAP) — the report shows the general fund had a $1.7 billion deficit.

A 50-state ranking at the WISTAX website shows that Wisconsin was one of only seven states to report a GAAP deficit. Of particular note: on a per capita basis only Illinois had a larger GAAP deficit than Wisconsin.

But wait…doesn’t Wisconsin have a budget “surplus”? Only if you use the essentially meaningless cash balance on the last day of a fiscal year. For example, say your checking account shows a balance of $1,000 on June 30 but you just booked a $3,000 vacation and have some unpaid medical bills. Do you have a “surplus”? Not if you count the invoices that will arrive in July’s mail.

But…hasn’t Wisconsin “eliminated” a multi-billion deficit inherited from Governor Jim Doyle?  It is true that the 2011-13 state budget wiped out what the Legislative Fiscal Bureau reports as the “structural deficit.” Now, according to the LFB, that projected shortfall is back and will exceed a billion dollars heading into 2019-21. Governor Walker’s spokesperson and some conservatives pooh-pooh that number. Apparently, in their view, the structural deficits that they portrayed in apocalyptic terms under Jim Doyle only matter if they occur on a Democrat’s watch.

As for the “Reform Dividend” budget of Governor Walker, if adopted the GAAP deficit of $1.7 billion in 2016 will grow to more than $2 billion by 2019.  Why is that? One key reason, as WISTAX recently wrote, “Proposed general fund spending [in the Governor’s budget] exceeds revenue by $155m in 2018 and by $215m in 2019.”

In summary, despite strong fiscal steps taken in the 2011-13 budget, the state’s fiscal condition arguably has declined. The per capita GAAP deficit is second only to that of Illinois. The projected structural deficit — portrayed as an ominous dark cloud under Jim Doyle — stands at a billion dollars.

Those facts notwithstanding, the Wisconsin State Journal reported last week that some legislators “are leaning toward using borrowing backed by general fund taxes to help pay for roads…”

This would continue a practice started by Doyle and accelerated under Walker. In 2006, highway debt service supported by the general fund totaled $40 million, an amount that will more than triple in 2017-18 under the budget proposed by Governor Walker. That growing cost, along with the mushrooming bill for debt paid by the separate transportation fund, is central to the transportation finance challenge now confronting the state.

Tapping the general fund for more highway debt would continue the practice, as described by the State Journal’s Matt Defour, of kicking the transportation finance down the road for another two years. This is the unavoidable result of Governor Walker’s opposition to raising the gas tax. Given projections of a structural deficit and growing GAAP deficit, all that’s certain is that the legislature will face more daunting issues when it convenes in January 2019.

For one thing, would be helpful if someone (perhaps state Sen. Howard Marklein (R–Spring Green), a CPA) who can understand the difference between cash and GAAP accounting as it applies to government can explain how to eliminate the state’s GAAP deficit. Since each counts revenues and spending differently, though I’m not an accountant, I don’t think cutting $1.7 billion from the (cash-measured) budget will necessarily eliminate the GAAP deficit, though if it did I’d be all in favor of it.

This proves yet again that fiscal irresponsibility is not necessarily tied to one political party, and that fiscal responsibility must not be tied to election results, and must be mandated instead by constitutional limits on spending and taxation, so that the rights of the taxpayer shall not be infringed by wasteful government spending. (For instance, requiring GAAP, not cash, balanced budgets at the state level.)



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