4 things to know about Wisconsin’s finances in 2014

By Ryan Ekvall | Wisconsin Reporter

Madison, Wis. — The biennial budget always gets the lion’s share of headlines — and for good reason. For better or worse, the budget implements major policy initiatives and tells taxpayers where the state plans to spend their money.

The less covered Comprehensive Annual Financial Report, though, is a better indicator of how the foxes in Madison have been managing the hen-house over the long haul.

“It tells you a whole lot about the health of the state’s finances without all the spin,” said Dale Knapp, a researcher at Wisconsin Taxpayer’s Alliance.

So let’s get to it. Here’s four things you should know about the state CAFR:

1) Knapp said he eagerly examines the state’s Generally Accepted Accounting Principles balance. Sure, the Legislature is constitutionally required to balance the budget every two years, but that’s using government financial wizardry that can mask spending obligations. For example, lawmakers can use borrowing or shift timing of payments in the budget to make it look balanced, only to end the year with a GAAP deficit.

The GAAP balance is a truer account of the state’s financial position, although it still doesn’t include pension obligations and other promises made to government employees, such as post-retirement health care coverage.

After fiscal year 2013, the state’s GAAP deficit is $1.7 billion. That number is down from the $2.9 billion when Gov. Scott Walker took office and is the lowest since 2003. Knapp said the big reason for the decline is the $760 million surplus in the state’s general fund, due primarily to larger-than-expected tax collections.

“This is really good news that the deficit is getting significantly smaller,” Knapp said. “Longer term it might help the state reduce borrowing costs on bonds.”

That can save taxpayers money in the future.

Here’s a graph put together by members of the Legislature’s CPA caucus:

Wisconsin’s GAAP balance has improved in the past three years, but is still a $1.7 billion deficit.

2) Why do low interest rates matter to Wisconsin state government? Because it borrows a lot of money. Net long-term debt increased $216.6 million in Wisconsin in 2013, a trend that’s developed in the state over the past dozen years. Total long term debt is $13.7 billion, which includes borrowing for the University of Wisconsin System.

“The level of debt we have in the state is something that is troubling that we’ve talked about for a while,” Knapp said.

It would take a one-time payment of $2,401 from every man, woman and child in Wisconsin to pay back the debt.

Lawmakers are pushing long-term debt, including borrowing for the UW System, towards $14 billion.

3) Knapp also looks at unrestricted net assets, which tells what resources the state has left after accounting for its obligations.

The state’s unrestricted net position in 2013 is negative $8.4 billion. That’s actually improved from the prior year by $2.4 billion and is the best it’s been since 2008.

According to the Government Accounting Standards Board, a negative unrestricted net asset is not uncommon in government, and it doesn’t mean the government is on the brink of collapse. Unrestricted net assets can tell something about unfunded long-term liabilities, including if the state takes on debt for something other than capital improvements — such as to buoy the state general fund.

Higher revenues and flattened spending have helped the state improve its bottom line.

4) The cost of health insurance benefits for future government retirees is rising. The state pays its OPEBs (other post-employment benefits) on a pay-as-you-go basis rather than pre-funding a trust fund like it does with state pensions. That’s OK unless health care costs jump unexpectedly or government employees retire in larger swaths than projected. The unfunded OPEB liability stands at $446 million. That’s the projected cost to state taxpayers for future retired government employees’ health care benefits.