Does Wisconsin Have a Budget Deficit?

by Bob Williams | Wednesday, January 25, 2012

Most states, including Wisconsin, are acting in budget denial.  According to the Encyclopedia of Mental Disorders, "denial" is "the refusal to acknowledge the existence or severity of unpleasant external relations."  Many states are ignoring the requirement to have a balanced budget and thereby denying the reality that deep and permanent reductions are needed in the size and scope of government.  States get away with this by using Government Accounting rules (GASB), which fall short of the accounting rules used by public traded companies, known as Generally Accepted Accounting Principles (GAAP).  GASB counts cash on hand regardless of future promises to pay money that the state cannot cancel.  Thus, states can appear to balance the budget, when in reality they have a deficit, and that is exactly what has happened in Wisconsin.

Governors and legislators are tempted to use gimmicks to kick the can to the future to help "balance" state budgets.  They succumb to the siren song of smoke and mirrors accounting.  The use of these gimmicks in most states, however, has simply ensured a much larger budget deficit problem in the next budget writing session. The problem of excessive spending by the states is hidden when states use these gimmicks.  While it is tempting for lawmakers to use GASB to hide their hides in the sand, at some point the Day of Reckoning will occur.  The longer lawmakers avoid the problem, the tougher it will be for them to solve it. 


Wisconsin resisted most of the gimmicks that other states use, with the one major exception being the state's use of the GASB accounting rule that does not require the state to show future promises.  GASB enabled the governor to claim that the budget was balanced.  The state's certification to the federal government that it anticipates a deficit under GAAP, however, exposes the flaw in this approach.  Rejecting most but not all budget gimmicks does not go far enough.  The state needs to be honest with itself and its citizens regarding what the true state of the budget is, and the only way to do that is to consider the upcoming liabilities.  As one new employee here said, "Under GASB, I don't have to consider my student loans when budgeting, right?"  If the approach does not work for private sector business, and it does not work for individual government, it also does not work for our state government.

State Budget Solutions urges all states to use Generally Accepted Accounting Principles and our Reality-Based Budgeting to "reset" state spending now.  Reality-based budgeting views all of state government -- all of its agencies and functions -- as a single enterprise. New proposals are evaluated in the context of all that state government is responsible for doing, and the strategies for achieving the best results are developed with an eye on all of the state's resources.  Such an straight-forward approach takes all the funds coming in and those going out, and does not ignore promising to pay that have been made by the state.  The state has to work with what it has and what it expects to have, or not have.  Substantial cuts are needed in most states to reduce state spending to a level that the state's private sector economy can support for the long term.