About that Republican Cash Surplus

The air in Madison is thick with talk of surprise surpluses, eliminated deficits, and tax cuts.

Hot air, that is.

While bipartisanship on key issues in Madison is elusive, when it comes to half-truths about the state’s fiscal condition neither party has a monopoly. (Per Merriam-Webster, half-truths “mingle truth and falsehood with deliberate intent to deceive.”)

Todd Berry, the past president of the authoritative and nonpartisan Wisconsin Taxpayers Alliance (now the Wisconsin Policy Forum), summed things up this way in a Journal Sentinel story several years ago:

“The term ‘deficit’ has been used to describe multiple fiscal conditions — past,  present, and future — that are actually quite different from one another. Both sides of the aisle know this and will interchangeably use these various definitions to spin things any way they want.”

Consider former Governor Scott Walker’s boast last month of “cash accounting surpluses” throughout his tenure. To buttress the magnitude of this supposedly unique achievement, a conservative advocacy group asserted that Walker “faced a $3.6 billion budget deficit” after his 2010 election. Walker himself frequently tried to equate the multi-billion dollar structural deficit he inherited with subsequent cash accounting surpluses. The two are not the same. Walker knows it. His claims are half-truths.

Rather than distort facts, it should suffice for Republicans (and their acolytes) to document accurately the GOP’s stronger general fund record in comparison to the indisputably dismal performance of the Doyle Administration. Doing so would let voters fairly compare the two major parties. As Wisconsin enters a period of divided government, and as Republicans create a record their candidate will run on in 2022, they should talk straight about fiscal issues.

For example, to make a meaningful — and accurate — comparison of the Walker and Jim Doyle tenures it’s necessary to understand the difference between (1) a “cash accounting surplus” and (2) a “structural deficit.”

A cash surplus simply means that on June 30 in odd-numbered years (at the end of a two-year budget biennium) there is a positive cash balance in the state’s general fund. The state Constitution adopted in 1848 requires a cash surplus at the end of each budget period.

So, when elected officials — Democrats or Republicans — boast of cash surpluses they merely have abided by the Constitution. (Apart from the last budget of the Thompson–McCallum era — 2001-03 — I know of no Wisconsin budget in modern state history that ended with a cash deficit. Per the nonpartisan Legislative Fiscal Bureau, Doyle’s initial budget — 2003-05 — began with a cash deficit of nearly $300 million inherited from McCallum. When Doyle left office Walker faced a possible cash deficit at the end of FY 2011 that he addressed after taking office.)

What, then, is a structural deficit? If you open your checkbook and confirm that there is money in the account, it demonstrates only that on a given day you have a positive balance — a cash surplus. What if you have bills that are due in the next day or so that exceed the cash balance? Unless you reasonably expect income in time to cover the bills you have a structural deficit. As once described by the Journal Sentinel’s Dave Umhoefer, for state government a structural deficit is “a pre-budget estimate designed to illustrate the size of the [potential] shortfall or challenge the governor faces when putting together a budget.” It’s a projection of the gap. It has nothing to do with a historical cash surplus.

The nonpartisan Legislative Fiscal Bureau has tracked the state’s projected structural deficits for the last 22 years. It identified a structural deficit of $2.9 billion when Governor Doyle took office. Along with a myriad of one-time accounting deferrals and gimmicks, Doyle raided the transportation and patients compensation funds for enough money to paper over the structural deficit sufficient for the state to have cash surpluses at the end of each state budget during his tenure.

Doyle’s fiscal gamesmanship left Walker with a $2.5 billion structural deficit heading into his first two-year budget. (Walker says the amount was $3.6 billion; the LFB figure is $2.5 billion. Whatever. Both numbers are large and posed a major challenge for the incoming governor and GOP legislature.)

While the 2011-13 legislative session was dominated by the Act Ten controversy, the other major action during that session was the enactment of a true reform budget. Walker and the Republican Legislature cleaned up the mess left by Doyle. Fund raids came to an end. One-time accounting gimmicks were minimized.

So substantial was the 2011-13 reform that entering the 2013-15 budget the state faced a projected structural surplus of $146 million. That has only occurred once in the 22 years that LFB had reported on the figure.

Following the 2011-13 reform budget the state under GOP control returned to a period of structural deficits. The amounts are smaller than during the Doyle era. Heading into the 2019-21 budget, for example, LFB projects that Gov-Elect Tony Evers faces a structural deficit of $906 million.

The GOP record of the last eight years clearly put state’s general fund in a stronger position (the story is different with respect to the separate transportation fund). But the urge to hype the record apparently is strong. It sounds better to have “eliminated” a structural deficit when in fact it has been reduced. Talk of “consecutive” cash surpluses loses its luster if one says “as the Constitution requires.”

And what about the current buzz over a cash surplus of about $600 million at the end of FY 2018? This is being spun as new evidence of GOP fiscal savvy and sound management.

Baloney. The budget adopted the fall of 2017 — more than a year ago — projected a $554 million cash accounting surplus as of June 30, 2018. The (slightly) higher current number mainly reflects that fact that projections in a multi-billion dollar budget will often be slightly high or low.

A one-time surplus in the middle of a two-year budget — a surplus consistent with projections made in 2017 — is now offered as supposedly fresh evidence in support of a permanent tax cut, one that will increase the 2019-21 structural deficit facing Evers and the GOP Legislature. (To address that deficit, a positive but unlikely result would be a budget decision to scale back the excessive state commitment to K-12 districts that Walker and the Legislature included in the current budget.)

As Todd Berry correctly observed, there’s nothing new about the fiscal mumbo-jumbo that both parties practice. Conservatives nevertheless deserve, and should expect, more from the officials they have helped elect.