Things to know about our neighbor to the north’s budget deficit
By Cara Lombardo
MADISON, Wis. — Wisconsin Gov. Scott Walker says his budget proposal sets the state up for a sunny future. But that depends on how you look at it.
The budget Walker submitted to the Legislature in February balances, as it’s required to under state law. But when that same budget is measured using generally accepted accounting principles, or GAAP, the picture is much different.
With that measurement, the state’s true budget deficit would grow to more than $2 billion by 2019 — the largest it’s been since 2012.
How could the budget be misleading?
For the budget to be truly balanced, the state would have to cut spending by the amount of the GAAP deficit — the shortfall when the budget is translated into GAAP.
“There are a lot of budget manipulations you can use to make the budget look better,” said Daniel Neely, a University of Wisconsin-Milwaukee professor who specializes in governmental accounting.
Namely, the budget is prepared in a way that counts millions and sometimes billions of dollars the state is temporarily holding for taxpayers and smaller units of government as its own.
Why does a deficit matter?
A large deficit tends to mean cash reserves are low, which means the state is vulnerable to any kind of economic downtown or political shock, said Todd Berry, president of the Wisconsin Taxpayers Alliance, a nonpartisan advocacy group.
A large deficit is also one of the reasons credit agencies haven’t raised Wisconsin’s bond ratings in years.
What does this have to do with Walker?
When he was running for governor in 2010, Walker vowed 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.”
During his first few years in office, he did chip away at the deficit, which had ballooned to $3 billion in 2010 under former Gov. Jim Doyle. By 2014, the deficit had dropped to $1.4 billion.
But it inched back up the following year and hovers around $1.7 billion in the most recent estimate. If Walker’s budget is adopted, the deficit would reach $2.1 billion — $365 for every person in the state — by 2019.
How do other states compare?
Wisconsin is one of only a handful of states with deficits when using GAAP. It was one of 10 states in 2014, which is the most recent data available from the Department of Administration.
And Wisconsin had the third largest deficit that year, after California and Illinois, two states with well-known, perpetual funding woes.
There are a few contributing factors, Berry said. Wisconsin provides more aid to local governments and tends to solve cash flow issues through excess withholding of income taxes, both of which increase the deficit.
What does Walker think about it?
Walker’s spokesman, Tom Evenson, did not comment on the fact that Walker’s budget would add to the GAAP deficit. Instead, Evenson highlighted that Walker will have decreased the deficit by more than 30 percent, from $3 billion in 2011 to around $2 billion in 2019.
What about other lawmakers?
The CPA Caucus, a group of Republican lawmakers who are also certified public accountants, has proposed requiring the state to reduce the deficit or use GAAP several times in the past. Caucus member Sen. Chris Kapenga said it’s possible they will try again this session.
“If I were in the governor’s spot, and I had some things I wanted to get pushed through, it’s an easy way to get what I need done,” Kapenga said. “But we’re saying, ‘Let’s fix the accounting of this so that people know this is how much (that’s) actually going to be spent.’”