Friday, December 18, 2015

GOP constitutional amendment wants to "fix" state budget that GOP messed up

After a week's delay, the Walker Administration dumped the annual Comprehensive Annual Fiscal Report (CAFR) for Fiscal Year 2014-15 this afternoon, . This report has gotten lost in the shuffle with all of the other Walker scandals emerging and John Doe getting taken to the U.S. Supreme Court, but digging into these figures show a couple of very intriguing numbers, and a reversing trend that directly contradicts a bill that WisGOP legislators are trying to jam through the Legislature before you know about it.

The CAFR has a number of accounting measures that are so arcane, I don't care to look much at some of them (and look at the arcane crap I write about in this blog). But it definitely has good information about the value of state assets, pension funds, and also a number of info items on indebtedness. One of the key measures is the measurement of the state's fiscal condition according to Generally Accepted Accounting Principles (GAAP), something that the Walker Administration originally pointed to as a fiscal failure of Jim Doyle's tenure as governor, using 2010 deficit fears to try to make the state's budget situation look awful. Let me go back to a Wisconsin Politi-"fact" article that had to admit that Walker was lying when he said
...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."...

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.

Walker balanced the budget, and in a way that eliminated the state's structural deficit, under the manner the state has long used.

But GAAP, an accrual accounting method, is a tighter standard that counts future liabilities that flow from past budget actions.
To Walker's and WisGOP's "credit," the GAAP deficit had decreased in the first 3 years of their time in power, as the economy improved nationwide and Act 10 transferred payments for state workers' benefits from the general taxpayer to the workers themselves (we'll leave out the damage that caused to the economy and the state's morale for the time being). But that trend of declining GAAP deficits ended in Fiscal Year 2014-15. As the CAFR notes
The General Fund is the chief operating fund of the State. At June 30, 2015, the State's General Fund reported a total fund deficit of $(1.8) billion. The net change in fund balance during Fiscal Year 2015 was $(413.7) million, in contrast to $370.8 million in Fiscal Year 2014.
This means the GAAP deficit was nearly $43 million higher when the 2013-15 budget ended vs when it began on July 1, 2013 (going against a claim made by the Walker Administration in the Politi-"fact" article).

To go further, the CAFR says the main reason for the increased GAAP deficit in Fiscal Year 2015 was due to higher expenditures, including a $406 million unfunded giveaway to tech colleges as a method of cutting property taxes, and over $478 million in increased Medicaid expenditures that were the result of Gov Walker and the WisGOP Legislature "reforming" the program without taking the 100%-federally funded Medicaid expansion that was in Obamacare. And that GAAP deficit is poised to go even higher in Fiscal Year 2015-16, as an increase in per-pupil aids for K-12 education is being delayed until after July 1 (which drives up the GAAP deficit) and $175 million is being borrowed from the General Fund to pay for road projects in the next Fiscal Year.

In addition, page 34 of the CAFR shows that the state's overall indebtedness for General Obligations went up by nearly $190 million, to just under $7.45 billion. This reflects a skipped debt payment of $108 million in May to avoid a budget repair bill, and other maneuvers throughout the year by the Walker Administration. Other debt actually went down by around $185 million, but with $675 million in Transportation Fund debt slated to happen in the next 2 years, it seems likely that number goes up in future years as well.

These GAAP numbers and increased indebtedness make it all the more remarkable that a State Senate Committee decided to pass a proposed amendment to the state constitution this week that would do the following.
This constitutional amendment, proposed to the 2015 legislature on first consideration, requires the state to account for and report all funds it receives or expends in accordance with generally accepted accounting principles (GAAP).

The amendment further authorizes the legislature to establish the budgetary basis of accounting, requires that any deficit of a state fund affected by a budget bill be reduced annually by 10 percent of any projected increase in tax revenues in that fund, and requires that, once the deficit is eliminated, the legislature may not pass any bill that would result in a projected deficit.
In other words, as the GAAP deficit rises, this amendment would force the accounting measures to change, resulting in a massive hole that would have to be filled in the state budget in 2019-21 (the earliest the amendment could come into law). It's the equivalent of forcing you to pay all of your mortgage, car loan, and student loans all at once to get your net worth to $0, instead of staying on the payment plan. Needless to say, this would jack up most people's finances, and this would especially be true in the case of the State of Wisconsin. And by total coincidence, that would be at the start of the next term of governor- a governor that seems likely to be a Democrat the way the Walker Administration is going these days.

Jon Peacock of the Wisconsin Council of Children and Families (and the authors of the indispensable Wisconsin Budget Project blog) testified against this bill in a public hearing last month, and included the following note.
Putting a GAAP accounting requirement into the constitution would tie the hands of WI lawmakers and would give authority for setting the parameters of state budget options to a private national organization.
True, but then take a look at the two organizations that have lobbied in favor of this sham budget bill, and realize that this may be the intelligence of the bill's design. It's the Koch Brothers' "Americans for Prosperity" and Wisconsin Manufacturers and Commerce! How cute is that! Two oligarch groups who elected the GOP politicians who signed onto the tax cuts and reckless borrowing that led to the increase in the GAAP deficit, and now want to force major budget cuts by balancing the budget using GAAP! No doubt this is part of a long-term strategy to cause privatization and profitization of state assets that will no doubt go to WMC and Koch/AFP backers. Disgusting, but that's how the way these right-wing oligarchs roll, tying to install the Shock Doctrine as much as they can.

With this bill in mind, anyone else find it more than a bit suspicious that the Walker Administration released the CAFR a week later than normal, so the reality of more than $400 million in additional GAAP deficit wasn't out there as the bill was voted on (it passed 3-2, all GOPs voting "yes", Dems voting "no")? We know there are few if any coincidences with this crew, but we need to stay on this proposed constitutional amendment as it tries to make its way through, because it is anything but fiscally responsible, and would cause even more damage to a state that is near FUBAR'ed as it is. Which may be how ALEC and the Kochs and WMC like it, but for those of us outside of the right-wing Bubble, it would be horrible and disastrous.


  1. Hi Jake, issues with some of your phrasing:

    "$406 million unfunded giveaway to tech colleges as a method of cutting property taxes" - your phrasing might make it seem that there was some actual benefit to tech colleges with this move.

    "$175 million is being borrowed from the General Fund to pay for road projects in the next Fiscal Year." - that's half of the contingent borrowing, but it's actually $200 million in 2015-16 and $150 million in 2016-17. And that is on top of new general obligation borrowing authority for the Transportation Fund that adds up to $379,800,000 for the biennium (figure 20.005(2)(a) on page 28). And that is on top of $38,009,600 of direct transfers from the General Fund this FY and $39,458,300 next FY (Figure: 20.005(1) on page 26).

    And all that is on top of $21 million each year from the Petroleum Inspection Fund. And a lapse of $5.2 million from the Freight rail infrastructure improvement loan program.

    And thanks to the GOP's Transportation Amendment a year ago the General Fund will never see these monies again.

    1. Geoff- I was trying to compare Gen. Obligation debt with Transportation Fund debt (and it's split $175-$175 between the 2 funds for the road borrowing), but I get your point.

      I agree with your point that the $406 mil for tech colleges weren't for the colleges themselves, but designed for tax cuts only, much like how this year's increase in the school levy credit can't go into the classroom. But all money is green at some point.

  2. Any promise that Walker makes during a campain is limited to that one term only. After that one term, any promises made do not exist.

    1. Actually, the Politi-fact article said that promise didn't last 6 months! Maybe he meant "I won't raise the GAAP deficit for one term."

      Seriously, who can trust any word this guy says in public at this point?