Results of a spring referendum present a rare opportunity for fiscal reform

By Todd A. Berry for the Badger Institute

Regardless of the party in charge, Wisconsin state government has not recently been known for sound financial management. But the results of a spring referendum present a rare opportunity for fiscal reform.

In the past 20 years, state finance has been plagued by a recurring pattern: A new governor inherits budget problems and has little choice but to cut spending or raise taxes. When surpluses return, he quickly cuts taxes or expands programs to improve election prospects but creates future fiscal problems.

Research I did while heading the nonpartisan Wisconsin Taxpayers Alliance (WISTAX) found that governors have long hiked spending and drawn down surpluses before elections. Govs. Tommy Thompson (R) and Jim Doyle (D) both did, as did Scott Walker (R) in 2013-’14.

Now, the same is true. With a mid-2018 surplus once estimated at over $650 million, Walker increased state school aid by over a half-billion dollars. This spring, he asked to cut state taxes via a child tax credit and a sales tax holiday. Many tax-policy experts saw these actions as missed opportunities for pro-growth tax reform.

One wonders whether Wisconsin politicians will ever change. One constructive prod would be to make the state treasurer Wisconsin’s fiscal cop. For 20 years, legislators have done the opposite.

In 1995, they transferred responsibility for securities to the State of Wisconsin Investment Board (SWIB); a few years later, they moved investment of trust lands, a college-savings program and the local government investment pool to the Department of Administration (DOA); and in 2013, they shifted the unclaimed property program to the Department of Revenue (DOR).

The treasurer now has one duty: serving as one of three commissioners on the Board of Public Lands. So, last spring, the Legislature offered voters a constitutional amendment abolishing the job.

The electoral response was seismic. The amendment was soundly rejected, 62 percent to 38 percent — defeated in 66 of 72 counties. Voters spoke loudly: We want an elected state treasurer; stop trying to legislate the job into irrelevancy.

So, now what?

There may be some merit to suggestions that the treasurer reassume past duties. However, such tinkering squanders a rare chance at reform. Rather than give the office a hodgepodge of duties, the treasurer could have real responsibilities that would make him or her a freestanding source for state fiscal truth.

Over the years, Wisconsin has concentrated many important financial functions — auditing, bonding, budgeting and controllership — under the authority of either the governor or Legislature. The state budget office, capital finance office and controller are all part of DOA, whose leadership the governor appoints.  Legislators oversee auditing, budget review and most revenue-estimating.

A first step toward reform would be to place the controller’s office under the treasurer to help insulate it from political mischief. A bolder move would be to add auditing, capital finance and economic and revenue-forecasting to the list.

Relocating the controller is a good start because the office prepares two essential reports: the state’s financial statements, known officially as the comprehensive annual financial report (CAFR), and the annual fiscal report (AFR). Unlike the state budget, the CAFR is prepared by CPAs following generally accepted accounting principles, or GAAP.

This means the CAFR unmasks budget tricks politicians sometimes use. It is also one of the few ways to compare Wisconsin’s fiscal health with that of other states. When done, one finds that Wisconsin’s general fund GAAP deficit is one of the nation’s largest — in per-capita terms, second only to Illinois.

Candidates for the open treasurer’s position are now campaigning. If voters want to make the office earn its keep, they should make clear that they will only support treasurer and legislative candidates committed to strengthening the office.

In a number of states, treasurers perform the controller and auditing functions, as well. If Wisconsin is to be known for good, fiscally responsible government, it, too, must move in this direction.

Todd A. Berry, Ph.D., authored this article while a tax-policy consultant to the Badger Institute. Prior to retiring at the end of 2017, Berry was for 25 years president of the nonpartisan Wisconsin Taxpayers Alliance. The views expressed here are strictly his own.

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