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By Dave Umhoefer January 29, 2012

Gov. Scott Walker says he eliminated Wisconsin’s $3.6 billion deficit without raising taxes

In a new campaign ad in heavy rotation on a television near you, Gov. Scott Walker looks directly into the camera to repeat the heart of his message as a potential recall election looms.

"When I ran for governor, I promised to rein in spending, eliminate the deficit and hold the line on taxes. And you know what? That’s exactly what we did. We had to make some tough decisions, but thankfully, we wiped out a $3.6 billion deficit without raising taxes."

Walker makes frequent use of that last phrase -- "we wiped out a $3.6 billion deficit without raising taxes" -- and did so again on Jan. 25, 2012 in his ’state of the state’ address.

Between the Walk-O-Meter (the tax question) and the Truth-O-Meter (deficit-related items) we’ve looked at aspects of this claim.

But we haven’t looked at how Walker is intertwining the two in his new anti-recall push. And it’s our most-frequently requested item of late from readers, mainly because of a new twist:

Walker’s own administration recently told the federal government the state will be left with a deficit at the end of the two-year budget.

So which is it?

Did Walker eliminate the deficit -- and do so without raising taxes -- or not?

On the deficit question, the answer is in the accounting.

Stay with us. It will be painless.

Let’s start with the bottom line: The state constitution requires a balanced budget and it has -- under Democrats and Republicans alike -- long used what is known as a cash accounting system in its budgeting.

That approach is used to generate the deficit number that politicians, the media, budget officials and others generally talk about. It was the basis for Walker to say in spring 2011 he faced an estimated $3.6 billion shortfall while putting together his first budget. (Critics argued he exaggerated the number, but a major deficit was real.)

But there is another way to look at the state’s books, a more stringent measure and one Walker himself cited in his bid to succeed Democratic Gov.  Jim Doyle.

In the 2010 race, Walker made an explicit promise, noted on his campaign website to "require the use of generally accepted accounting principles (GAAP) to balance every state budget, just as we require every local government and school district to do."

This is known as the accrual accounting method, something also used by publicly traded companies. On the Walk-O-Meter, we rated this a Promise Broken. Walker did not use the GAAP approach on his first budget.

Indeed, under that approach, the state shows a $3 billion GAAP deficit each of the next two years. And that is the new source of confusion.

It was the GAAP standard Walker pointed to on Dec. 29, 2011, when his administration argued to the federal government the state should be allowed to make further cuts to state health programs. Why? Well, that measure showed a deficit in the state budget.

To be sure, Democrats didn’t complain about the broken promise at the time -- balancing the budget by the GAAP method would have required much deeper cuts. And even now, as they note Walker is trying to have it both ways, no one is suggesting the state reopen the budget and cut billions more.

Why are the two numbers so different?

The cash accounting method allows the state to use maneuvers to bring the budget into balance, such as pushing current liabilities into future budgets or counting anticipated revenue before it materializes.

Think of the $2,000 you have on a credit card from buying a big-screen HDTV and sound system for the party room. GAAP takes that future liability into account now.

"It’s sort of the difference  between the federal debt and the federal deficit -- one is an accumulated figure over many years and the other is a one-year number," said Todd Berry, president of the Wisconsin Taxpayers Alliance, a research group.

But the fact a GAAP deficit exists doesn’t wipe out what Walker and lawmakers did in balancing the budget according to the official, recognized method used by the state and its Legislative Fiscal Bureau, which both sides acknowledge as the official neutral scorekeeper of such matters.

And it’s clear to us Walker in the new ad -- and in other venues -- is talking about the traditional cash shortfall deficit. He refers to choices he made during the budget process. And he refers to the $3.6 billion number, which was used frequently in early 2011 to describe the size of the budget shortfall.

In 2011, we rated False separate statements by U.S. Rep. Gwen Moore and state Rep. Marc Pocan that Walker "manufactured" or "invented" the $3.6 billion shortfall. The number is squishy, outside experts told us, but a defensible estimate of the challenge he faced.

So in the ad, Walker is on solid ground to say he eliminating a $3.6 billion deficit.

This leaves us with the tax aspect of the claim.

In an earlier Walk-O-Meter item we rated as Promise Broken Walker’s pledge to "oppose and veto any and all efforts to increase taxes."

But in the ad, the claim is worded somewhat differently -- that the deficit was eliminated "without raising taxes."

Overall, Walker’s budget included a modest $34 million reduction, mainly through business tax breaks. His plan included $83 million in tax cuts, according to the Legislative Fiscal Bureau, but that was offset by $49 million in tax increases.

The bureau determined that Walker included three tax increases in the budget. As we noted in our Walk-O-Meter item on the promise:

"The largest involved a reduction in a state tax credit for low-income working families, known as the earned income credit. A tax credit reduces the amount of tax you owe.

"In this case, the earned income tax credit is in place for both state and federal taxes. It’s refundable, so individuals with little or no income tax liability may still receive the credit.

"A second tax increase, the fiscal bureau said, is stopping the inflationary adjustment of the state’s Homestead Tax Credit -- the property tax break that appears as a credit on income tax forms for low-income homeowners and renters. The bureau calculated that change would increase taxes by an estimated $8.1 million."

Walker has disputed the characterization of the credit change as a tax increase, saying that decreasing a tax credit is reducing spending, not increasing taxes.

But outside experts, including one with the Wisconsin Taxpayers Alliance and another with the Wisconsin Budget Project, told us they considered it a tax increase.

And even though the language in Walker’s ad is somewhat different than his 2010 pledge, it still ignores those tax increases in his budget.

The bottom line on Walker’s claim of eliminating a $3.6 billion deficit without raising taxes: It’s a mixed message.

So is ours: Half True.

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Gov. Scott Walker says he eliminated Wisconsin’s $3.6 billion deficit without raising taxes

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