After you learn that Wisconsin’s debt has increased by at least $1.3 billion since Scott Walker’s first budget went into effect, you’d swear you were at a circus watching clowns (Wisconsin’s media and the Walker Administration) juggle numbers to magically transform $1.3 billion in increased debt into a “$400 million surplus” and then a “$517 million surplus” that never existed. How are they doing this?
There are three basic methods the state uses to describe how much money we have or owe: Cash Accounting; the GAAP (Generally Accepted Accounting Principles) Deficit; and Long Term Outstanding Debt. Only one of them is accurate in determining where the State really stands.
The Cash Accounting method is the one currently used the most by the Walker administration. Cash Accounting tells you the balance in Wisconsin’s bank account the day you look at it. It doesn’t take into account any of your future debt obligations. Lets say your bank account shows a negative $158 million balance. No problem! Just borrow $558 million and put it in your account. Not only did you just “erase” the $158 million negative balance, but now you have a $400 million “surplus.” That’s what Walker did when he took out $558 million in 20 year loans from May 2011 to March 2012 (1).
So now you have a phony “surplus” to brag about, but you also have $558 million in loan payments plus $156 million in interest due, deepening the State’s debt for the next 20 years. Because you can borrow as much as you want to “balance” the budget or to create a phony “surplus” by using Cash Accounting, it’s a mostly meaningless figure. But this is the method Walker is using when he says there is a surplus (2).
Another set of numbers you may have noticed are the GAAP Deficit (3) figures that are typically around $2 billion to $3 billion for each fiscal year (Wisconsin’s fiscal year is from July 1 thru June 30 of the next year). The GAAP Deficit takes into account all of Wisconsin’s incoming revenue and outgoing debt obligations for the fiscal year, thus giving you a more accurate picture of the State’s finances. However, because the money the State owes can be restructured past the fiscal year, the GAAP Deficit numbers can be manipulated too, and therefore do not give a full picture of where the state stands.
The Walker administration did that when they deferred $558 million in debt obligations in 2011 and 2012, and deferred other state obligations beyond the fiscal year (4). However, all they really did was kick the can down the road, and by deferring payments, they also increased the interest we owe on their loans. “It’s just taking one credit card to pay off another credit card,” said The Legislative Fiscal Bureau, which is considered the “Gold Standard” for Wisconsin’s finances by both parties.
There is also a third way of calculating Wisconsin’s financial status known as Long Term Outstanding Debt that includes all of Wisconsin’s current and future obligations. Nothing is hidden, which is why this is the most important fiscal number. It’s the only one you can rely on.
According to the official figures, Wisconsin’s debt has increased by $1.3 billion from June 30, 2011, the day before Walker’s first budget went into effect, to $14.2 billion as of December 15, 2012 (5).
The Department of Administration (DOA) reported a $12.9 billion Long Term Outstanding Debt on June 30, 2011—the day before Walker’s first budget went into effect—that increased to $13.5 billion as of June 30, 2012: Outstanding Debt for June 30, 2011 and June 30 2012 – Page 34, Table 8: ftp://doaftp1380.wi.gov/doadocs/2012%20CAFR_Linked.pdf
The Legislative Fiscal Bureau (LFB) reported a $14.2 billion Long Term Outstanding Debt using the same method as the DOA as of December 15, 2012 ~ Page 19, Table 10: http://legis.wisconsin.gov/lfb/publications/Informational-Papers/Documents/2013/78_State%20Level%20Debt%20Issuance.pdf
As you can see, the official numbers show a $1.3 billion increase in total debt in just 18 months since Walker’s first budget went into effect. What this means is that the “surplus” never existed. It’s nothing more than a shell game used on Wisconsinites, with compliance from our lackadaisical media.
And with $2.05 billion in new borrowing already approved for Walker’s 2013/15 budget (6), you can only expect Wisconsin’s debt to continue to escalate to over $16 billion by 2015 while Walker continues to use the same shell game to hide the truth about Wisconsin’s finances.
Your next question might be, “Why isn’t Wisconsin’s media reporting this?” It certainly was mine, so I asked John Smalley, Editor in Chief at the Wisconsin State Journal. While agreeing that these figures were more accurate, he gave me a variety of reasons for not using them: we don’t have enough people or the budget to cover it thoroughly; we can’t use two sets of figures; everyone is reporting the (bogus) cash accounting figures, so we’re going to do it too unless the State starts using the actual debt figures. *
Walker sold Wisconsinites The Big Lie in regards to our debt, and because of a lazy media, he may get away with it.
(1) http://bdgrdemocracy.files.wordpress.com/2012/10/2012_05_18-vinehout.pdf (If the link isn’t working, copy it and paste in the URL header) ” the state has issued additional debt to restructure, or make the principal payments on,
approximately $558.3 million in GPR supported principal that would have otherwise been paid off
in 2010-11 and 2011-12.”
(2) Forbes Magazine finds that Walker is using “Cash Accounting” To deceive the public about our actual debt:
(3) “It (GAAP deficit) is a generally accepted accounting principles way of looking at the state’s finances. It really does not impact the state’s budget, in that we budget based on state’s opening balance (or deficit, if the case may be) and the amount of revenue and expenditures are expected to be received and paid out during each budget year. This is what we term as funding the government on a ‘budgetary basis,’ and this is done on a July 1 to June 30, fiscal year basis…” ~ LFB
“The GAAP deficit is… a result of operations for the 12 month fiscal year, ending June 30, on an accrual basis, based on Generally Accepted Accounting Principles for governments…” ~ Stephen J. Censky, CPA State Controller
(4) http://www.thedailycall.org/?p=38883 Sen. Kathleen Vinehout’s comments in this article are interesting: “It is also my understanding that the Department of Revenue made a slight adjustment to withholding amount for Wisconsin income taxpayers which made the largest single part of the GAAP gap …
… In addition, the governor has not paid debt payments coming due in 2011 and 2012. These payments were refinanced not to capture a lower interest rate but to avoid making payments and, in some cases, to raise additional cash through the sale of bonds ‘at a premium,’ meaning sold at a higher interest rate than market to capture a cash up-front payment. The total amount is over $560 million in debt payments coming due and not paid. “~ Kathleen Vinehout
(5) Walker added several hundred million to the $12.9 billion June 30th, 2011 Debt figure even before his budget went into effect by restructuring $190 million in Wisconsin’s debt, and giving out at least $140 million in corporate tax break before June 30, 2011. He also withheld over $560 million of Wisconsin taxpayer money, but the total figure and date this happened is unknown so far…
(6) Walker has $2.05 billion in new loans approved for his 2013/15 budget (with an estimated $600K in interest): http://host.madison.com/news/local/writers/mike_ivey/under-scott-walker-wisconsin-keeps-increasing-its-long-term-borrowing/article_17c3d58a-2d3a-11e3-90fe-001a4bcf887a.html
“… a new report from the non-partisan Wisconsin Taxpayers Alliance shows the state has actually just been borrowing more money. The two-year, $70 billion state budget signed in July authorizes an additional $2.05 billion in borrowing.”
A few great articles on the debt…
Vinehout: Myths Abound On State Budget
Bruce Murphy: The Debtor Governor
~ State law requires every Governor to “balance” the budget, and allows them to use Cash Accounting to do it. However, no Governor has borrowed as much or at as high a rate as Walker has. See Bruce Murphy’s article above.
~ FORBES finds that Walker is lying about the Budget Deficit, “Will Gov. Scott Walker Ever Come Clean on Wisconsin’s Budget Deficit?”
~ The Walker Administration also misstated Wisconsin’s revenue by $1 billion in 2012:
~ The DOA writes the CAFR (Comprehensive Annual Fiscal Report), and since they’ve lied and/or made such huge mistakes, their reports aren’t as reliable as the LFB’s. The LFB (Legislative Fiscal Bureau) only releases it’s State Level Debt Issuance report every 2 years. The LFB told me that they just started using the same method as the DOA to calculate Wisconsin’s debt for their 12-15-2012 report, so I couldn’t compare it to their 12-15-2010 report. This explains why I used both the CAFR and the LFB reports to show the increase in debt.
*Mr. Smalley’s reply: