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Community Corner: Honest state budgeting
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The non-partisan Legislative Audit Bureau and the state auditor annually conduct an audit of the State of Wisconsin’s financial statements. The audits are generally released in December.

The legislature and Governor recently received the audit report for the fiscal year ended June 30.

The annual financial statement is called the Comprehensive Annual Financial Report, or CAFR. This report is especially interesting, since it is prepared on the basis of generally accepted accounting principles, commonly referred as GAAP. Since it is prepared on the basis of GAAP, it is the most accurate reflection of the financial position of the state.

Most units of local government (counties, school districts, cities, villages) and businesses must report their financial results on the basis of GAAP. In state government, however, there has been a historical tendency to focus on cash basis reports and ignore the true financial picture of the state.

For many years, this has led to some “creative accounting” to balance the state budget. Some common techniques were borrowing from the Transportation Fund, borrowing from the Patient Compensation Fund; ignore payment obligations (e.g. Minnesota reciprocity payment), etc. You get the picture. Instead of addressing financial challenges squarely, they skirted the tough issues and pushed them off to future legislatures and governors.

What has been the result of the use of these accounting gimmicks? The CAFR for the year ended June 30, 2000 indicated that Wisconsin had a general fund deficit of $840 million. By June 30, 2011, the general fund deficit had grown to almost $3 billion! The bond rating agencies in New York were concerned about these deficits, and it had an impact on our bond rating.

The good news is that the most recent CAFR indicates that our general fund deficit has decreased by almost $800 million in the year ended June 30. In essence, we have paid off $800 million of the credit card balance that had been charged to taxpayers in prior administrations and legislatures.

This is a remarkable improvement in our State’s financial position. The year ended June 30 was the close of the first year of the biannual budget that we adopted for the 2011–13 biennium. I am pleased that we faced the serious budget situation honestly. The recent CAFR is proof that honest budgeting works.