Naïveté and the State Budget

By George Lightbourn

In the six years since the last recession, WPRI has published a series of studies that have put the state budget process under a microscope.  Over the years we have identified several structural flaws that have been eating away at the state’s fiscal foundation.  We have also stepped up to the plate and offered a series of specific recommendations as to what should be done to strengthen the budget process.

We’re pretty sure that not one of our recommendations has been adopted.  We’re told that we’re naïve; that the Governor and Legislature are too politically astute to administer the medicine we prescribe.

Well we revel in our political naïveté.  We embrace our principles of sound fiscal management.  Had just one of our recommendations been adopted, the state’s current fiscal misery would be significantly less than it is.  We surely did not anticipate the depression-like economy currently gripping America, but we did understand what the Governor and the Legislature should have known – that Wisconsin’s budget was unsustainable.  It was a disaster waiting to happen.  Now that the disaster has occurred, some attention should be paid, not only to plugging the fiscal holes, but to repairing the structural flaws that have made the disaster so much worse.

Here are some of the things we have been saying since 2003.

Balancing the budget is not enough

The way Wisconsin balances its budget presents scores of openings for designing people to make the budget appear to balance when they know that simply is not the case.

Stop keeping two sets of books

State government should adopt a budget that balances using generally accepted accounting principles.  GAAP budgeting is the standard that every local government follows.

Understand that revenue forecasting is unpredictable

We found that Wisconsin revenue forecasts are off by an average of 41%.  This isn’t the fault of the forecasters but rather it reflects the unpredictable nature of the economy.  Yet budget after budget the Governor and Legislature spend every forecasted dollar as though collecting on an IOU.

Budget adequate reserves

In the current budget, the Governor and Legislature thought a reserve of .1% was sufficient.  These people would have brought a squirt gun to the Chicago fire.

Stop using debt to fund operating costs

This seems so logical, but, in Wisconsin, it is done all the time.  On a per capita basis, our debt has moved us from 40th in the country to 10th.  Sadly, Mark Pocan, the Co-Chair of the Legislature’s Joint Finance Committee has said that debt will be part of the solution to the current budget shortfall.

Build a long-term fiscal plan

Rather than building a budget around available revenues, Wisconsin leaders should examine just how much of the state’s economy should be consumed by the public sector.  The last time we looked, Wisconsin’s per capita spending was 7.7% above the national average while income was 2.8% below average.  Why do we never hear the Governor or legislators talking about these statistics when they’re preparing budgets?

This is a partial list of budget improvements.  You can find others at www.wpri.org.  Admittedly it is a list borne of political naïveté.  Perhaps at some point the political virtuosos who currently have the keys to the state treasury will begin acting like responsible fiscal stewards and adopt every item on the list.   

-May 14, 2009