The state’s audited financial statements (also known as the Comprehensive Annual Financial Report, or CAFR) have been issued and the good fiscal news continues to accumulate.
I ran for office in 2010 in part because, as a Certified Public Accountant, I was astonished the state was using accounting methods that would land a public company’s chief financial officer in jail.
Although I have not been successful in my efforts to ensure every budget in the last decade is balanced using Generally Accepted Accounting Principles (GAAP), recent budgets have been closer to being balanced. What’s remarkable is that subsequent to the passage of the past several budgets, the actual results have been significant budget surpluses.
The GAAP deficit represents the difference between accounting the correct way (GAAP) and the wrong way (cash basis). This gets technical, but it’s important. First, we should expect honest budgets from our elected officials. Second, rating agencies for years downgraded Wisconsin’s bonds because of the accumulated accounting sins over time.
That’s the proper way to think of Wisconsin’s GAAP deficit—it’s not the deficit in one budget, but rather the accumulation of accounting done erroneously for decades.
Deferring payments to local governments, school district and vendors is one example. The state’s fiscal year ends on June 30th. Instead of paying local governments, school districts and vendors in the period in which services are being rendered (January 1 – June 29) the state waits to pay these parties until July 1 so the “expense” is put off until the next period.
Additionally, throughout the year the state withholds payroll, corporate and other taxes from businesses and individuals. The taxes collected used to average 20 percent more than what was actually due when taxes are settled the following year. GAAP accounting would not count this additional 20 percent as revenue because the amount collected is going to be sent right back to the taxpayers. However, the state would collect the additional money and then spend it instead of segregating it into a fund reserved for overpaid taxes.
One of the changes we were able to make since 2011 was decreasing the payroll withholding throughout the year so your pay check is larger, but your refund is lower.
In 2010 these past accounting shenanigans resulted in a nearly $3 billion GAAP deficit. However, as of 2019 that has been shaved to $773 million, a 73 percent decrease. There’s still work to do, but the success significantly exceeds everyone’s expectations.
This success, coupled with the following facts, mean Wisconsin’s fiscal health has consistently improved, although I believe we have more work ahead to protect Wisconsin against another Great Recession.
- Wisconsin’s rainy day fund has increased 38,082 percent from $1.7 million in 2010 to $649.1 million today.
- Wisconsin is one of few states that have a nearly-100 percent funded pension plan.
Wisconsin is one of fifteen states that does not follow GAAP accounting for budgeting. My conservative colleagues in the legislature and I will continue pushing for that important standard and working to ensure our budgets are honest.
Dale Kooyenga (R-Brookfield) represents the 5th district in the Wisconsin Senate.