By Kirsten Adshead | Wisconsin Reporter
MADISON ? What?s in a ?surplus? or a ?balanced budget??
The better question might be: What?s not?
As the economy improves and tax revenue rebounds, politicians nationwide are touting balanced budgets ? even surpluses ? as proof their states are on a positive fiscal track.
The problem, fiscal analysts say, is that for virtually any state, those reports are little more than a thin veil, masking deep-rooted financial problems.
Seeking balance?For years, states have relied on accounting gimmicks, pension-plan deferments and help from the federal government to keep budgets balanced, Eileen Norcross, a senior research fellow at George Mason University?s Mercatus Center testified to the U.S. House Committee on Oversight and Government Reform in February 2011.
?These techniques helped states show budgetary balance, grow spending and pass the cost of funding plans onto future taxpayers,? Norcross said. ?States are now looking to a future with slower economic growth and dramatically increased federal deficits and debt. States will have to rethink how they are budgeting.?
Last year, the Wisconsin Legislature passed a budget that avoided most of the accounting tricks and fund transfers used by previous administrations, Democrat and Republican alike, to balance the budget as state law requires.
?(W)e balanced the $3.6 billion budget deficit with long-term, structural reforms. We thought more about the next generation than we did about the next election,? Gov. Scott Walker said in this year?s State of the State address.
Filling the GAAP?The Wisconsin Taxpayers Alliance, or WISTAX, though, isn?t so celebratory ? even setting aside a February report that predicts Wisconsin will have a budgetary deficit after all.
A report from the nonpartisan Legislative Fiscal Bureau indicated that Wisconsin is projected to have a $53 million deficit at the end of fiscal 2012, which concludes June 30, and a $208 million deficit at the end of fiscal 2013, due largely to lower-than-expected tax revenue.
Even if the state?s general fund ? which covers most state expenses ? was statutorily balanced, the state?s Generally Accepted Accounting Principles deficit, or GAAP, measuring beyond the general fund, is running between $2.5 billion and $3 billion, said Dale Knapp, research director of WISTAX, a private government research nonprofit.
GAAP is a much more stringent way of accounting.
Knapp gave the analogy of charging an item on a credit card: Under the state?s current way of accounting, there isn?t a budgeted expense until the bill comes due.
GAAP accounting says, however, that there is a known, real expense that will have to be paid at some point, and therefore that expense should be factored in to budgeting.
By the GAAP measure, including such things as inventory costs, Wisconsin?s debt is between $2.5 billion and $3 billion, according to the alliance.
?It?s worsened in almost every year since 2003,? Knapp said. ?So (lawmakers this year) stopped making it any worse. So to that degree, it?s a positive. But they didn?t do anything to make it better. They didn?t do anything to reduce it.?
The state Assembly passed a joint resolution in February to amend the Wisconsin Constitution to require GAAP principles to be used in state budgeting. But the Senate hadn?t taken action on the amendment as of Thursday afternoon, the last day of the legislative session.
Checking in on the neighbors?Wisconsin is far from the only state with financial problems that budget announcements seemingly belie.
Three of Wisconsin?s neighboring states have or are projecting budgetary surpluses this fiscal year:
- Minnesota has an estimated $323 million surplus this year. But Gov. Mark Dayton and lawmakers balanced the state budget largely through accounting tricks, including delaying payments to school districts, which now won?t get 40 percent of the money they?re owed from the state until the following fiscal year, according to the Minnesota Budget Project, an initiative of the Minnesota Council of Nonprofits, which provides nonpartisan budget analyses.
- Iowa has a projected $396 million surplus in the upcoming fiscal year. But total state debt, including pension obligations, is nearly $26 billion, according to Sunshine Review, a nonprofit that emphasizes government transparency.
- Michigan balanced its fiscal 2012 budget similarly to how lawmakers dealt with the Wisconsin budget and now has a projected $627 million surplus for the year that ends Sept. 30. But Michigan?s unfunded pension liability to its teachers alone is $18 billion, and that doesn?t include the cost of other retiree benefits or any pensions and benefits owed to state employees, said Craig Thiel, state budget expert for the Citizens Research Council of Michigan, a nonprofit that studies finance and government issues.
Illinois? shaky finances are extensive. At the end of this year, the state is projected to have $8.5 billion in back bills to pay and still faces an $85 billion unfunded pension liability.
Lessons from the past
As the Great Recession fades further into history and tax revenue once again is on the rise, lawmakers nationwide are facing decisions on what to do with the new money: Set it aside in a rainy day fund? Pay off debt? Increase services??Thiel said Michigan Gov. Rick Snyder has emphasized using one-time dollars for one-time expenses, such as offering high-performing school districts a one-time cash influx or giving more money to local governments that agree to share services.
Jeff Esser, CEO of the Government Finance Officers Association, which identifies and develops financial policies and best practices in government for the public benefit, said lawmakers can look to the past for lessons for the future.
?I think each state has to make that determination on their own,? Esser said. ?? they have to look at what were their revenue projections and what did they actually earn, and extrapolate from that what were the (lessons learned) for the next time there?s a recession.?
Norcross told Wisconsin Reporter on Thursday that she thinks states have learned the importance of keeping up with their pension payments. She said states might be more inclined to put money away in a rainy day fund.
And she encourages people to be critical of state budgets.
??Balanced budget? simply means that things look like they?re balanced,? Norcross said, adding,??a surplus is a good thing certainly, but I think one problem with state budgets is there is a tendency to put on myopic glasses and just look at year to year.?
Source: http://www.wisconsinreporter.com/balanced-budget-surplus-gloss-over-many-states-financial-woes
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