Before he took office, Gov. Scott Walker vowed to use it as the standard for a balanced budget. Now incoming Gov.-elect Tony Evers says it’s “something to work towards.”
Both were referring to a method of accounting standards used by publicly traded companies, certified public accountants and local governments — but not the state — known as “generally accepted accounting practices” or GAAP.
After eight years in office, Walker never fulfilled his campaign promise to balance the state budget using the GAAP method.
The state’s financial picture is much less rosy when measured by those standards — though it’s in far better shape now than when Walker took office in 2011, shortly after the Great Recession.
The Wisconsin Constitution requires state government to balance its budget. But it only must do so under so-called “cash accounting” practices — a less-expansive view of the state budget that doesn’t fully account for future expenses to which the state has committed.
The latter standard is what Walker used in a statement last week, touting that for the eighth year in a row the state ended the fiscal year with a budget surplus, which totaled $588 million as of June 30.
“We are leaving Wisconsin in the best financial condition in a generation. This is part of our legacy,” Walker said.
Using this benchmark for state finances is an about-face from Walker’s campaign rhetoric when he ran for governor in 2010. Then Walker pledged to “require the use of GAAP to balance every state budget, just as we require every local government and school district to do.”
As of June 30, under GAAP accounting, the state faced a $1.25 billion deficit, according to the state’s comprehensive annual financial report issued by the Department of Administration.
The discrepancy between the two methods is largely due to the state making some spending commitments, such as property tax credits, that it doesn’t fully pay out until the next fiscal year.
As recently as 2015, using GAAP to measure Wisconsin’s financial picture ranked it among the worst of any state, the Wisconsin Taxpayers Alliance said last year.
There’s little question, however, that state finances are in better shape now than when Walker took office. The $1.25 billion deficit under GAAP is the state’s lowest since 2001, according to figures supplied by the nonpartisan Wisconsin Policy Forum, created last year through a merger of the taxpayers alliance and the former Public Policy Forum.
When Walker took office in 2011 after the Great Recession had dampened tax collections, the GAAP deficit was $3 billion.
As a percentage of revenue or of expenditures — which helps account for growth in state revenue and spending over time — the most recent GAAP deficit is at its lowest point since the policy forum’s predecessors began tracking the figures in 1990.
Forum research director Jason Stein said Walker is in line with past governors who also used cash accounting as the yardstick for state finances. Still, Stein said one reason the state’s GAAP deficit matters is because the future spending commitments for which it accounts could hamper the state’s ability to respond to a potential economic downturn.
“Clearly we’re at or near the peak of the economic cycle, so we should be making progress on our fiscal condition,” Stein said. “Sooner or later there will be a recession, and we won’t be making progress — or maybe going backward.”
Evers, asked last week about using GAAP accounting, said it and cash accounting are “two completely different animals.” He noted he employed the former when he was a school district superintendent.
At the same time, he made no promise to adopt it.
“That’s something we need to work towards. I can’t guarantee in our first budget we will be able to move to GAAP accounting,” Evers said.
“But certainly the people of the state of Wisconsin expect to have transparency in the budget. And as we move forward in this budget time, we want to make sure that people understand the difference between those two.”