State budget deficit creates its own 'shock and awe'

As part of the public service mission of the Wisconsin Taxpayers Alliance, I frequently speak to well-informed business and community leaders around the state.

When I tell them the state's official financial statements released in December showed a $2.44 billion deficit, jaws drop.

If there are any CPAs in the audience, jaws are on the floor. That's hardly a surprise.

Since the Enron scandal, accountants have had to operate under strict rules governing financial reporting. No misleading numbers. No financial sleight of hand.

So, how come the shock and awe when otherwise smart people learn of the state's financial condition?

One reason is that the state budget is not prepared according to the generally accepted accounting principles (GAAP) that CPAs, the state controller, and Wisconsin's official financial statement must follow.

Budget balancing

Statutes require a balanced budget, but how that is achieved is left to the governor and Legislature.

In recent years, state budgets have been balanced by:

• Ignoring or rewriting laws that required sufficient reserves.
• Transferring large sums from supposedly restricted funds (like $1.1 billion from the transportation fund).
• Using accounting "tricks" that permit money to be spent in one year but not budgeted until the next; and
• Crafting plans that allowed the state to borrow from the future to keep current budgets "balanced."

Borrowing has taken many forms, including issuing tobacco bonds to convert into cash, future legal settlement payments to the state, refinancing state bonds that trade money now for higher debt later, and using highway revenue bonds to replenish the transportation fund depleted to balance the state budget.

The result? Elected state officials and the media tell us the state budget is "balanced," when it truly is not.

As a result, state bonds are rated lower than in all but a dozen states.

Wisconsin has begun every biennium since 1997 with a structural deficit of $500 million or more.

Our financial statements have had GAAP deficits near or exceeding $2 billion for each of the past five years.

State-bonded debt

State-bonded debt, now at $9 billion, has more than doubled since 2002.

And in a figure that leaves CPAs breathless, the state's net unrestricted assets last year were negative $8.2 billion.

Hypothetically, if creditors were to demand tomorrow that Wisconsin meet its obligations, the state would have no choice but to sell roads, parks, buildings and campuses.

The latest news is that, even under questionable budget accounting, the state budget faces a shortfall by mid-2009 of between $650 million and $1 billion.

What does all this mean for you? Future budget "fixes" could mean:

• Higher property taxes
• More tuition increases
• A new tax on hospitals and hospital consumers.
• Expansion of the corporate income tax.

For state employees, the news isn't any better: Years of hiring freezes and layoffs are not over.

When I was young, my Yankee grandmother eschewed debt, living within her very modest means.

I don't know about you, but my tight Wisconsin farmer-forebears are rolling over in their 150-year-old graves.

More important, though, my children don't deserve to be left with a legacy of irresponsibility.

Todd Berry is president of the Wisconsin Taxpayers Alliance.