Constitutional Change Would Limit State Budget
Proposed amendment barring budgets that violate GAAP principles would tie legislators hands.
A proposed constitutional amendment that was scheduled for a public hearing this week is likely to have harmful unintended consequences. Although the proposed amendment – Senate Joint Resolution (SJR) 55 and its Assembly companion, AJR 66 – has the laudable goal of making state budgeting more transparent and more fiscally responsible, it would tie the hands of future lawmakers and delegate some of the authority to set budget parameters to an unelected private organization. One potential consequence is that Wisconsin could be prevented from withdrawing money from the Rainy Day Fund when that funding is needed most.
The proposed constitutional change would prevent lawmakers from passing a budget that causes or increases a deficit, based on Generally Accepted Accounting Principles (GAAP). GAAP is a set of accounting standards developed and periodically updated by a private national organization. The constitutional amendment would also require that every year until the state has eliminated the GAAP deficit in the General Fund (and in any other fund), lawmakers would have to use at least 10 percent of that year’s growth in the revenue deposited in that fund to reduce the GAAP deficit.
The proposed restrictions on budget options are likely to preclude taking money from the state’s Rainy Day Fund during recessions, when revenue falls and the need for spending on social programs increases. To the best of my knowledge, no state has put a requirement for using GAAP into its state constitution.
One of the primary goals of using GAAP for state budgeting purposes is to improve democracy by increasing transparency and accountability, but SJR 55 would have a very different effect. By putting a requirement to use GAAP into the state constitution, SJR 55 would delegate authority to a private national organization to set the parameters of Wisconsin’s budget options. As a result, SJR 55 is likely to hurt democracy by making legislators and the governor less responsible and accountable for budget choices. New York City is required to use GAAP, and its use there has led to complex work-arounds that have decreased transparency. (Read more about the NY City experience here.)
Proponents of SJR 55 argue that Wisconsin needs to have a rigid requirement to use GAAP standards because our state recently had one of the largest GAAP deficits in the U.S. However, a major reason for this is that prior to fiscal year 2015 the GAAP deficit calculations didn’t take into account unfunded pension obligations. Since new GAAP standards do take those obligations into account, and Wisconsin does a better job than other states of funding its pension system, Wisconsin’s rank should be much better when we see the new comparative figures for the GAAP deficits in each state in fiscal year 2015.
I commend the proponents of SJR 55 and AJR 66 for seeking to make budget decisions more transparent and to promote more responsible budgeting. However, those goals can be accomplished through legislation that improves information-sharing with the public and enhances advance planning, rather than by making Wisconsin the only state in the nation to put inflexible GAAP standards into its constitution.