Wednesday, May 21, 2008

A GAAP-Toothed Budget

Lawmakers were all smiles the other day when they passed what has very loosely been called a budget repair bill. The governor had to be smiling too after he executed a Frankenstein veto on the Legislature's handiwork to reshape it to his liking. (For those who thought the voters had put an end to this kind of thing by amending the state constitution in April, I should hate myself for saying this, but I told you so.)

Legislators were four months late putting together the original budget and in a few short months it was out of balance again, even by their peculiar accounting standards. They now claim it's fixed. It isn't.

The collective grin we got from state officials was gap-toothed . . . it had a hole in it the size of the hole that remains in the budget. They did what they've done for years . . . use smoke and mirrors to make the budget appear balanced. But if Generally Accepted Accounting Principles are applied, there still is a hefty deficit. Call it the GAAP gap.

Private companies and nonprofit groups and other government agencies operate under GAAP standards. But not our state government. Central to GAAP is the idea that both revenues and expenses for a given year should be accounted for in that same fiscal year. For years now, state lawmakers have engaged in financial sleight of hand, delaying major state payments until after the current fiscal year ends and effectively putting those expenses on a credit card to be paid in the next budget period. There is nothing in state law that makes this practice illegal, but it is most certainly financially irresponsible.

There are at least two negative consequences for taxpayers. First, failing to pay today's bills until tomorrow makes paying tomorrow's bills even harder. The state's problem keeps getting bigger. A report issued in January had the GAAP deficit at over $2.4 billion. The previous year, it was $2.15 billion, which was more than the year before. And that year's GAAP gap was bigger than the year before that. You get the picture.

The second consequence of the GAAP deficit is it hurts the state's bond rating. That means the state has to pay higher interest rates when it borrows money. And, of course, it's the taxpayers who pay the penalty for our lawmakers' fiscal irresponsibility.

This problem has been 20 years in the making. GAAP deficits have been happening under Democratic governors and Republican governors, and they've been happening when Republicans control the Legislature as well as when Democrats are in charge. But while the problem isn't new and both parties are to blame, it's important to remember that it hasn't always been this way.

There was a time when Wisconsin had a truly balanced budget. What's interesting is that persistent GAAP deficits emerged about the same time Wisconsin's Legislature changed from a part-time citizen legislature to one that is full-time and run by professional politicians. That's no coincidence.

To balance a budget, you either spend less or take in more. In government, that means either higher taxes or fewer public services or some combination of the two. None of these options is politically painless. But back when we had part-time citizen legislators, they were willing and able to make those tough choices. Then they returned to their regular lives.

For today's legislators, politics is their life. It's a career now. Telling taxpayers they'll have to pay more or get less from government is career threatening. So they look for a more appealing alternative. Like putting today's expenses on a credit card and worrying about how to pay for them later. And smiling and telling us the problem is solved. Even when it isn't.

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