Saturday, December 12, 2015

Why don't we know about Wisconsin's GAAP deficit...and the GAAP amendment?

On the second Friday in December in Wisconsin, there is usually a report released in Wisconsin that gets little exposure, except to us who are budget geeks. It's the Comprehensive Annual Fiscal Report (CAFR), and it basically is an in-depth overview of state government's balance sheet, including the value of state assets, pension funds and the state's debt situation. Here's a look at last year's report, and you can dig around in it if you want to know more about the numbers behind the numbers.

But that FY 2014 report is the last one you can get, because the FY 2015 report didn't come out on yesterday, which was the second Friday in December. I find that VERY interesting to note, especially since the CAFR includes what is known as the GAAP accounting method of state finances, and that brings us back to an original Scott Walker claim from 2010. Scotty tried to use the GAAP standard as a mark of how "fiscally responsible" he was in his 2010 election, and made a promise that even the Journal-Sentinel's pro-Walker Politi-"fact" had to admit was one Scotty would break within 10 months of taking office.
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."...

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 [as of November 2011, this was not the case by 2013 and is not the case today], 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.
The GAAP deficit has been cut in half since 2011, and stood at just under $1.4 billion at the end of Fiscal Year 2014. However, we know that in FY 2015, the budget barely balanced using the cash accounting method, and needed to use gimmicks such as delaying a $108 million debt payment just to make the numbers add up. In addition, the 2015-17 budget featured $850 million in additional borrowing for roads and delayed $126.8 million in per-pupil aids for K-12 education into the next fiscal year just to make it legal. Both of these items will be reflected on the GAAP budget, and drive it higher in future years.

Interestingly, there is a vote next week in a State Senate Committee on a proposed constitutional amendment put together by some GOP members of the Legislature to require the state budget be balanced using GAAP. It sure makes me wonder if that's related to the fact that the CAFR didn't come out yesterday- can't use the document to argue against it if it isn't available to look at. In addition to changing the standard that future budgets will be based on, leading to massive disruptions (and likely cuts) in services as a result, the proposed constitutional amendment would tie the hands of future Legislatures to handle the budget mess that will inevitably happen from such an amendment.
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.
What's interesting is that many of the sponsors of that bill also signed off on the last budget which raised borrowing, delayed payments, and will jack up the GAAP deficit in the near future. It's a classic "rules apply to thee, but not for me" law, and seems like a long-range scheme to FUBAR state finances and cause privatization ...which just might happen to benefit the campaign contributors of this amendment and/or the lobbying careers that many of these legislators will likely have moved onto in a few years.

The other disturbing part of the delay in the CAFR and the revelation of the GAAP deficit is that is continues a pattern I have pointed out where the Walker Administration continues to hide financial information from the public. This includes the October state revenue report, the last 2 months of the state cash balance report, and the last 2 months of the state's allegedly up-to-date record of appropriation expenditures. Something really stinks here, and I think it's well past time for our media and elected officials to start demanding data and answers.


  1. Here's an article I wrote on it with a bunch of links in text and expecially in the footnotes:

  2. It will be our retirement fund that gets blasted. There too many people out there that feel we shouldn't get what we have worked years to have.

    1. It certainly would be a backdoor way to avoid giving the state contribution to the WRS, claiming there is a surplus in that system and a way to close the fake deficit.

      They'd better try it sooner than later, because the bad stock market returns of this year will cut that surplus pretty fast.