Beware of surplus, deficit claims
Perhaps no word in 2014 state politics will be more used and abused than the word “deficit.” Voters, beware.
Strident partisans love to cherry-pick state surplus or deficit figures that most help them from, variously: agency budget requests, a governor’s budget proposals, a budget bill as enacted, or later yet, official financial statements prepared well after a fiscal year ends. Some will show deficits; some, surpluses.
Confused? That’s the point. Some politicians are tempted to use only numbers that tell their story.
Particularly fertile sources for confusing the public about state finances are two reports prepared by the same agency for the same time period.
The first report is the Annual Fiscal Report (AFR) issued in mid-October. It generally uses cash (budgetary) accounting to summarize revenues and expenditures in the state general fund for the fiscal year ending the previous June 30.
According to the latest AFR, the state closed its 2012-13 budget period with a general fund surplus of $759.2 million.
The second report, the Comprehensive Annual Financial Report (CAFR), summarizes state general fund health for the same year but comes out in mid-December. Unlike the first report, this one is prepared by CPAs following national standards called generally accepted accounting principles (GAAP).
Released before Christmas, the latest CAFR showed a $1.73 billion general fund deficit for 2012-13.
Neither report is wrong, but they use different accounting and often produce different results. Over the past 20 years, one has almost always shown a surplus, the other has always reported a deficit.
During 2011-13, the state cut the deficit in its CAFR from about $3.0 billion to $1.7 billion, while raising its cash surplus in the AFR from $86 million to $759 million. A major factor in both was accumulation of surplus due to spending reductions and better-than-expected revenues.
What lies ahead for Wisconsin finances depends on the economy and decisions elected officials make. The economy and tax collections have been gaining strength. However, two aspects of the new 2013-15 state budget might give pause.
First, by temporarily spending more than it is bringing in, the new budget “spends down” the current surplus. No matter which report is used, that reduces the surplus.
Second, by cutting income taxes but not reducing paycheck withholding, the new budget provides the state with extra cash until it must be refunded. As a CPA would view state finances (using GAAP), temporary “borrowing” from taxpayers can increase the size of the deficit reported on financial statements.
What’s the takeaway from all this alphabet soup and accounting gibberish? Simply that voters need to be cautious when political partisans talk about state finances.
Todd Berry is president of the Wisconsin Taxpayers Alliance.