Give the state treasurer a job

An empowered treasurer could be an independent voice for fiscal sanity

By TODD A. BERRY | July 11, 2018

Whether run by elected Republicans or Democrats, Wisconsin state government in the 21st century has not been known for sound and steady fiscal management. But the surprising results of an April 2018 referendum present the state with a rare opportunity for financial reform.

That reputation has suffered in recent decades due to a recurring pattern: A new governor inherits budget problems and has little choice but to cut spending or raise taxes until the economy and revenues begin to recover and budget surpluses are again anticipated. 

As soon as that happens, however, thoughts turn to re-election. The governor seeks some combination of tax cuts and program expansions. Unfortunately, although such actions might enhance re-election prospects, they inevitably go too far, sowing the seeds of a future state deficit. It’s a boom-bust roller coaster we’ve been on for years.

According to research I did while heading the nonpartisan Wisconsin Taxpayers Alliance (WISTAX), governors have long spent money and dissipating surpluses to win re-election. Republican Gov. Tommy Thompson did so in 1990 and 1994; Democratic Gov. Jim Doyle followed suit in 2005-’06, as did Republican Gov. Scott Walker in 2013-’14.  

The same was true going into the current gubernatorial campaign. With a mid-2018 state surplus once estimated at over $650 million, Walker and legislative supporters increased state school aid by over a half-billion dollars.

Recently, they also cut state taxes via a child tax credit and a narrow sales tax holiday, two schemes that independent fiscal experts generally have viewed as election-year salves, rather than good, pro-growth tax policy (see, for example, “Arbitrary tax breaks neither good policy nor good economics” by Badger Institute visiting fellow Jay Miller).

Official financial statements prepared by the state controller eventually reflect these patterns. Also known as the Comprehensive Annual Financial Report, the CAFR is prepared by CPAs according to generally accepted accounting principles (GAAP), the same professional standards used to prepare corporate annual reports.

In 2000, Wisconsin’s CAFR showed a state general fund GAAP deficit of over $800 million. By 2011, the shortfall approached $3 billion. To his credit, in his first term, Walker reduced that deficit to under $1.4 billion. But in recent years, the deficit has been ratcheting up again. As of mid-2017, it was almost $1.7 billion. That makes it one of the largest state GAAP deficits and, in per-capita terms, second only to Illinois.

For most of my 25 years at the Taxpayers Alliance, I repeatedly lamented these irresponsible financial practices. Although editorial writers, gubernatorial challengers and many minority-party legislators often concurred, incumbents running state government — Democrat and Republican — ignored the concerns.  “Buying” re-election always trumped long-term fiscal health.

After decades of such mischief, one wonders whether Wisconsin’s professional politicians will ever be able to change their behavior. But what voters did in April provides a glimmer of hope. If state lawmakers heed the voters’ unmistakable message, the Legislature can take meaningful steps toward fiscal responsibility within a year.

The key is empowering the state’s abused and diminished state treasurer’s office.

Since 1980, those controlling the Legislature repeatedly have sought to strip state constitutional officers of responsibilities. First, Democratic lawmakers tweaked a Republican lieutenant governor by ending his right to preside over the state Senate. Republicans followed by repeatedly de-emphasizing the role of the Democratic secretary of state.

But the poster child for these efforts has been the state treasurer. The office has been in both Republican and Democratic hands over the years, and political opponents repeatedly have passed laws narrowing its statutory duties.

Repeating a complete litany of attacks on the treasurer would require returning to the 1930s, when the treasurer had many significant duties, among them managing state funds, receiving tax payments and depositing and issuing checks.

Fast forward to the past 20 years, and consider some of the more recent attempts to render the treasurer irrelevant. Responsibility for securities was transferred from the treasurer to the State of Wisconsin Investment Board (SWIB) in 1995; investment of trust lands was moved to the Department of Administration (DOA) in 1997; cash management as well as the state’s college savings fund and the local government investment pool underwent similar moves to DOA in 2003 and 2011, respectively; and responsibility for unclaimed property was shifted to the Department of Revenue (DOR) in 2013.

Agency budgets reflect these actions. As a former WISTAX colleague found, in 1995-’97, the treasurer’s office had 23.5 employees and a budget of $4.4 million. In the current state budget, those figures are one and $227,000, respectively.

Having methodically stripped the treasurer of any meaningful duties, only one task remains: serving as one of three commissioners on the Board of Public Lands. To add insult to injury, state officials relegated the treasurer to the basement of the Capitol.

Presumably believing that eradicating the treasurer’s office was an electoral “slam dunk,” the Legislature asked voters to approve the April constitutional amendment abolishing the position.

Voter response was seismic. The amendment was overwhelmingly rejected: 584,323 (62 percent) to 361,965 (38 percent). Geographically, the amendment was rejected north, south, east and west, in urban and rural areas, and in counties with both Democratic and Republican leanings.

Of the state’s 72 counties, the amendment was approved in only six. And victory margins in four of those counties were narrow.

The voters’ message to state lawmakers was strong: We want to elect a state treasurer; stop trying to legislate the job into irrelevancy. The result was so clear that renewed attempts to diminish or eliminate the office would be dead on arrival.

So, now what? Some suggest restoring past duties of the treasurer, and the idea might have merit. Yet, given the force with which the electorate spurned the amendment, such tinkering would squander a rare and major opportunity.

Rather than give the office a hodgepodge of old tasks, the treasurer could be entrusted with significant responsibilities that would make him or her the source of state financial fact, an independent voice for fiscal sanity.

Though little noticed, Wisconsin has over the years concentrated important state financial functions —auditing, bonding, budgeting and controllership — under the authority of either the partisan governor or partisan legislative leaders. The state budget staff, capital finance office and controller are all part of the Department of Administration, whose leadership the governor appoints. Auditing, budget review and most revenue-estimating are under the purview of the Legislature.

This is not to say that these offices all have given way to partisan manipulation. Despite partisan attempts to misrepresent their findings, the Legislative Audit and Fiscal Bureaus have maintained their independence and sterling reputations. But as state politics becomes ever more prone to “gotcha” partisanship, the risk of abuse can only rise.

A wise and overdue reform would be to reduce this concentration of authority, shrink a bloated DOA and shift some financial functions to the treasurer, where they would be insulated somewhat from interference by the state’s chief executive and legislative leaders. A good place to start would be the state controller’s office now in DOA.

The controller performs several financial functions, but preparation of two key documents is what matters most if state financial reporting is to be trusted and transparent.

One is the CAFR financial statements already mentioned. Because it is prepared using GAAP accounting standards, it is one of the few tools to unmask state budget tricks of the governor and Legislature and ascertain the state’s true financial condition. And it is one of the few reports that allows easy and reliable comparisons of finances across states, since CAFRs elsewhere also rely on GAAP.

A second report prepared by the controller is the annual fiscal report (AFR) that is released in mid-October. Though the AFR, like the state budget, relies on modified cash accounting rather than GAAP, it is the first good look the public has at a budget after its year is completed. Experts rely on the AFR to identify tax and spending trends and to serve as a starting point for preparing the next state budget.

Don’t get me wrong. I would love to see other financial functions moved from gubernatorial or legislative influence to the treasurer’s office. Even bolder moves would be to add the Legislative Audit Bureau, DOA’s capital finance office (bonding) and revenue-estimating to the list.

Ideally, I would go a step farther and elect the treasurer on a nonpartisan spring ballot for a 10-year term.  These steps might be politically hard to accomplish but would further protect important financial functions from political mischief. They also would increase the likelihood that the treasurer’s office could become Wisconsin’s independent fiscal conscience, free to speak fact-based truth to partisan power.

Candidates for the open state treasurer’s position are now waging their campaigns. If voters want to make the treasurer earn his or her keep, they should put aside party preference and make clear that they will only support candidates for treasurer and the Legislature who unequivocally commit to placing the state controller — and perhaps other functions — under the treasurer.

In a number of states, treasurers already have one or more of these responsibilities. If Wisconsin is again to be known for good, fiscally responsible government, then it, too, must re-create and empower a strong treasurer’s office.

Todd A. Berry, Ph.D., authored this article while serving as a tax-policy consultant to the Badger Institute. Prior to 2018, Berry was president of the nonpartisan Wisconsin Taxpayers Alliance for 25 years. The views expressed here are strictly his own.

 

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