Bonding, The Budget And Corporate Welfare

When Mark Twain said ““Never put off till tomorrow what may be done day after tomorrow just as well," he might easily have been talking about bonding.

Usually a state sells bonds to pay for long term capital projects. But like any political practice, the selling of bonds may be subject to abuse. The use of bonding to pay off current expenses that ought to be discharged through tax increases or spending decreases is considered a “no, no” among agencies that rate state bonding. The practice, however, is a “yes, yes” among politicians who want to avoid either the unpleasant option of raising taxes or the equally unpleasant option of cutting spending. The beauty of bonding for such politicians is that it allows them to escape the wrath of voters who understandably resent tax increases imposed to pay for current budget expenses and improvident spending. The downside to bonding abuse is that current expenses are carried into the future, a benefit for cowardly politicians charged to the future generation on a “buy now pay later” plan.

Bonding puts off until the day after tomorrow payment for obligations that ought to be met today by those responsible for incurring debts.

Bonding for current expenses was one of Mr. Malloy’s bêtes noire when he was running for the governor’s office, and a change from a modified cash basis system to a Generally Accepted Accounting Principles (GAAP) system was the candidate’s answer to budgetary skulduggery that had led to unmanageable budget deficits.

Pointing to the delinquencies of his two Republican predecessors, Mr. Malloy was compelled, he said, to institute the largest tax increase in Connecticut history, second only to the tax increase that followed Governor Lowell Weicker’s income tax. Requiring revenues under GAAP to be counted in the year they are received necessarily created a budget differential of some $1.2 billion. Initially, Mr. Malloy had planned to bridge the gap through budgetary savings. The recovery that Panglossian Democrats in the General Assembly hoped might flood the state’s treasury with sufficient funds to pay down the differential never materialized, and Mr. Malloy now has decided to pay down the $1.2 billion gap through bonding. The funds generated through bonding will be dedicated to this purpose unless, according to one news account, “there’s an emergency,” in which case the money may be used for some other purpose following a three-fifths vote in the Democratic dominated General Assembly. It is not unheard of for governors in Connecticut to declare budget emergencies. 

During the fag end of the last legislative session, the Democratic dominated General Assembly ordered Connecticut State Treasurer Denise Nappier to borrow $750 million to facilitate the conversion to GAAP.  The decision to borrow rather than saving the money to pay down the differential will cost the state more than $200 million in interest over the life of the bonds.

The Malloy bonds naturally “improved” the state’s cash flow and, for the first time in many moons – prior to the elections too -- state Comptroller Kevin Lembo was able to predict a small budget surplus.  Cash flow is improved whenever taxes are increased or bonding is used to generate funds that are not made available in a depressed economy.

No political skullduggery here – just business as usual in a state addicted to chronic spending.

On the Republican side of the political barricades, Mr. Malloy’s decision to pay for the  differential by bonding rather than by the means he had first settled upon – save money in the state’s piggy bank and use it to convert to GAAP – produced  a forceful objection from Republican Party gubernatorial hopeful  John McKinney.

“Appropriating real dollars to reduce the state’s GAAP deficit,” Mr. McKinney said, “would have been an honest and direct way of dealing with the problem, and I would have supported those efforts. But that’s not what the governor is doing. Instead, he is borrowing in order to kick that commitment down the road another two years.”

For Democrats, GAAP has become the equivalent of a budget chastity belt. However, it is never an adjustable belt that assures chastity. A chastened big spender would understand that budget deficits are caused by the disposition to spend. And there is little or no acknowledgement among members of Connecticut’s spending class that spending must be curtailed or that excessive regulation – which always drives up business costs – must be pared back. Everywhere, big spenders await the “rising tide that will lift all the boats,” an expression employed by President John Kennedy in his well-known speech to the Economic Club of New York in 1962, in the course of which Mr. Kennedy said:

 “The final and best means of strengthening demands among consumers and business is to reduce the burden on private income and the deterrents to private initiative which are imposed by our present tax system – and this administration pledged itself last summer to an across-the-board, top-to-bottom cut in personal and corporate income taxes to be enacted and become effective in 1963.”

Mr. Malloy has instead used what little money he found in Connecticut’s debt ridden budget to advance a destructive crony capitalist program, which involves giving rare tax dollars to companies he bribes for the pleasure of doing business in the state, including profitable mega-companies or smaller companies that use abused taxpayers to finance their moves from one town to another.

Lifting all the boats is not a progressive specialty, and it is doubtful that John Kennedy could be elected dog catcher circa 2014 anywhere in progressive, crony capitalist Connecticut.

And Now, the Campaign

Almost immediately after Governor Dannel Malloy and Democrats in the General Assembly had put their budget to bed, a Hartford paper noted that however much lipstick Democrats put on the budget porker it was in many important respects still a pig.

Another media resource noted that while the governor had indicated he had been faithful to his earlier promise to hold the line on taxes – but not, tellingly, on spending – the new budget, Mr. Malloy’s second, placed new limits on tax credits, extended expiring taxes, boosted the gasoline tax 4 cents per gallon, drained from the transportation fund $120 million collected at the pumps during the last two years, depositing the money targeted for transportation needs into the general fund, resorted to $550 million worth of fund raids to plug holes in the budget, borrowed about two thirds of the $1.2 billion necessary to convert to a GAAP accounting system and shifted a little more than $6 billion of Medicaid spending from a constitutional capped budget so as to draw down an otherwise embarrassing deficit. 

And so the budget session ended -- in magic tricks of a kind once derided by Mr. Malloy and the Malloyalists.

On to the campaign.

The first campaign pitch of the season was delivered by Mr. Malloy at the close of the session. The closing session of the General Assembly usually ends with a love fest among incumbent legislators, both Democrats and Republicans, who fetch from it bragging rights useful to them in upcoming campaigns.

This year was different, frostier some have noted. Those who pay for the legislative bills may want to applaud the last day of the legislative session. Mark Twain, were he alive – and even dead he is livelier than most people in Connecticut who write about politicians – certainly would have reason to rejoice. It was Twain who said “No man's life, liberty, or property are safe while the legislature is in session.”

On the last day of the legislative session, the Bureau of Economic Analysis reported that Connecticut had come in dead last among the 50 states in economic growth, a measure of the combined total of goods, services and salaries, the state’s equivalent of the nation’s Gross Domestic Product (GDP). Connecticut’s Gross State Product (GSP) fell by 1 percent in both 2011 and 2012, the only state in the nation that had experienced such a dip as well as a painful downward revision from last year’s estimate of 2 percent growth.

Democrats pronounced their budget plan a success and loudly patted themselves on the back, brushing aside a report from the state’s non-partisan Office of Fiscal Analysis that had projected, only moments after the General Assembly adjourned, a $712 million gap in the first year of Connecticut’s new budget. Mr. Malloy, whose budgets have consistently been short by hundreds of millions of dollars, pointed out that the economy was not static but dynamic: “They're predicting deficits assuming that all conditions remain the same. I think what we've shown fairly broadly in this administration is that conditions don't remain the same. We're eliminating waste. We have numbers built in the budget that in fact do that."

Ah yes -- the numbers.

Comptroller Kevin Lembo this year submitted to the General Assembly a bill that would throw windows open on the numbers and expose to public view the hundreds of millions of dollars the state spends every year in economic assistance and tax credits putatively designed to promote economic development and job growth. His legislation, the Comptroller said, “would have established key transparency and open government measures related to these dollars.” Although Mr. Lembo’s sunshine bill survived the House, it died from inattention on the floor of the Senate, crushed by the forces of darkness in the General Assembly that prefer a gloaming in which numbers might more efficiently be fudged. Mr. Lembo, it should be mentioned, is the only Democrat in state government whose numbers have been consistently correct.

When legislative gate keepers Senate President Pro Tempore Donald Williams and Majority Leader Martin Looney were asked why they didn't call the bill for a vote, “Williams and Looney,” Jon Lender of the Hartford Courant reported, “mentioned a number of factors, including time, lack of an urgent need, and what they characterized as only lukewarm support by the office of Gov. Dannel P. Malloy.”

When politicians find they cannot control the course of events, they more strenuously seek to control the flow of information, the better to create politically palatable fictional narratives – sometimes called campaigns. In a state in which competing parties have been neutered, fictional campaign talking points are rarely effectively rebutted by a somnolent politically compromised media. Some few reporters in the state stand out as exceptions that prove this rule, but there are far too few of them.   

The state Republican Party enjoyed two brief bright moments of bipartisan conviviality a short time ago when Republican votes were needed to pass a gun restriction law. The two parties came together a second time when Mr. Malloy needed Republican assistance in plugging an ever recurring hole in his first budget during a special session. After this bright dot of bipartisan sunshine, both the governor and Democratic legislative leaders, brought down the now familiar iron curtain when, for the second time, Republicans were shooed out of the room during budget negotiations.

The doleful Bureau of Economic Analysis report is more than a report; it is a marker of the state’s destiny. And the state’s swollen budget is also a directional marker. Budget wise, the state has returned to 1991, the date at which a state income tax was implemented to put Connecticut on a firm and permanent economic footing. Because spending has tripled since that auspicious date, the foundation has given way. The state is progressing backwards. Our destiny points downward, the usual direction of a one party operation. Darkness, secrecy, shady backroom dealings and the politics of the shadows has always followed in the uncontested rut of the one party state.

Malloy, The Budget And The Pinocchio Test

On budget matters, the governor proposes and the legislature disposes. Connecticut’s General Assembly has in the past been disposed to tinker with budgets presented by the state’s chief executive.  No one knows precisely what the Democratic dominated General Assembly will do to a budget that has been etch a sketched by Governor Dannel Malloy and Democratic leaders in the General Assembly.

Once again this fiscal year, Mr. Malloy and Democratic legislative leaders have stiffed Republicans on budget matters. During Mr. Malloy’s first budget negotiations, Republican leaders were shooed out of the room so they might not interfere with delicate negotiations then underway between Mr. Malloy’s agents and union leaders representing SEBAC, the state union conglomerate authorized to negotiate contracts with the governor. On that occasion, Democratic leaders in the General Assembly pre-approved a budget submitted to them by Mr. Malloy and invested him with plenipotentiary powers to make whatever adjustments SEBAC, Connecticut’s fourth branch of government, and the governor thought advisable.

The budget was batted around between Mr. Malloy’s Malloyalists and union leaders. After a few bloody rounds, a budget sprang forth about which Edith Prague, a union friendly state senator, said that union leaders would be crazy to reject it. It was rejected by the union crazies, more negotiations ensued, and finally a budget was produced that, Mr. Malloy said, was balanced , contained no gimmicks, was GAAP compliant and “fair share” observant.

Mr. Malloy’s first budget, heavily freighted with the largest tax increase in state history, tilted several times since it had been extruded, sausage-like, from the Democratic dominated General Assembly. There are some number crunchers – though none among the Malloyalist crew, save Comptroller Kevin Lembo, who sometimes demurrers – who doubt that Mr. Malloy’s first budget ever was in balance.

Now comes Mr. Malloy’s second budget – and how fares it?

So far, the second budget appears to be a deja vu all over again repeat of the first.

Republicans – called upon by the governor to iron out in a special session a few deficit wrinkles, a love fest praised by both Mr. Malloy and Republican leaders as a show of non-partisanship the national government would do well to copy – once again have been shown the door.

A one party state like Connecticut does not need the budget input of a bystander party. And never mind that the Connecticut Supreme Court recently ruled that Republicans should command the top line on the ballot in future elections because Mr. Malloy’s party garnered fewer votes than the Republican Party in the gubernatorial election; it was THAT close, Mr. Malloy winning the election because of votes cast by the putatively independent  Working Families Party.

Every time Mr. Malloy failed to include Republicans in his budget negotiations he disenfranchised the majority of Republican and Democratic Party voters who cast their ballots in his gubernatorial election. This budget year, Mr. Malloy – who twice refused to include Republicans in his budget deliberations – cited Republicans in the General Assembly for failing to offer a shadow budget. Chutzpah, thy name is Malloy.

Mr. Malloy’s budget outline will be presented to the General Assembly, which likely will tinker with the product in an attempt to satisfy union dependent Democratic members in the legislature.

Mr. Malloy recommended his budget to the Democratic dominated General Assembly -- and to the general public -- with his chest expanding to incoming Republican rhetorical bullets: “The bottom line is we will not increase taxes or create any new taxes. The budget will be in balance and will be GAAP-compliant.”

A story in CTMirror added a few cautious “buts” to Mr. Malloy’s brag.

The Malloy budget would not “increase taxes or create any new taxes” in keeping with a previous Malloy pledge that followed the imposition of the largest tax increase in Connecticut history. But “…it also would extend some controversial taxes on businesses and power plants that had been set to expire next year." And but... "It also implements one of the largest tax hikes on gasoline and other fuels in state history on July 1 -- an increase approved in 2005 -- while diverting all of the proceeds to non-transportation programs.” And but “…it also employs a controversial new interpretation of Medicaid budgeting that effectively would remove more than $1 billion from under the constitutional spending cap over the next two fiscal years. The affected Medicaid programs are paid for up-front with state dollars, but all costs are reimbursed with federal aid.”

Mr. Malloy’s budget raises spending, raises taxes and is over reliant on federal reimbursements from an Obamacare that has in it more mirrors and trapdoors than a funhouse. Obamacare recently has met a stiff resistance from union chiefs who fear that union membership will be reduced after the very expensive Obamacare proposition compromises union offered health plans. No word yet from SEBAC as to whether they will join their brothers on the union line who fear that Obamacare will reduce both union membership and dues.

Bottom line: Spending in Connecticut will increase under its present union reliant one party state. And since taxation follows in the rut of spending, taxes in the future will also increase. Neutered legislative Republicans are simply too cowardly to place exorbitant spending rather than tax increases at the center of their assault against a runaway progressivism -- because they too reap the political fruits of heedless spending.

Cooking The Books The Malloy Way

Charming how Connecticut, whenever the state dips its toes into a budget crisis, tends to cook the books.

During his first gubernatorial campaign in 2010, Governor Dannel Malloy campaigned on a platform to adopt real world accounting measures so that the accounting sins of preceding governors – two of them Republicans and the third a “Maverick”Republican – would not be visited on Mr. Malloy or succeeding governors, yea, even to the third generation.

That was what Generally Accepted Accounting Procedures (GAAP) was all about. Connecticut’s modified cash basis system, an accounting method full of blue smoke and mirrors, had played havoc with state budgets, the governor and his Malloyalists said. Adopting GAAP would end what one reporter at the time called “an array of accounting gimmicks that have pushed current expenses into future years.” No more budgetary sleight of hand, the governor strongly implied in his public statements.

When Mr. Malloy first presented his plan to transition to GAAP at a Connecticut Society of Certified Public Accountants gathering at the Aqua Turf in Southington in May, 2011, “Three hundred Certified Public Accountants applauded when Malloy described his first executive order which requires the state to transition to Generally Accepted Accounting Principles, or GAAP,” according to one account.

At the point when GAAP was ready for launching, it was discovered that Connecticut would need about $75 million to fuel the rocket. The state, then suffering a budget deficit of about $285 million, did not command sufficient surplus funds to get GAAP off the launching pad, and the project was put on the back burner for five months. The differential between GAAP and Connecticut’s modified cash basis system at the time was about $1.7 billion – not pocket change – and the state needed the $75 million to cover inflation and retain the deficit at $1.7 billion. The first budget bill signed by Mr. Malloy allowed for a 15-year plan to pay off the GAAP differential, starting in the 2013-14 fiscal year.

Connecticut could not afford the down payment on GAAP, the first payment tied to the GAAP conversion having been sacrificed to pay for a then current budget deficit and, for all practical purposes, the GAAP conversion was indefinitely postponed last May.

As the French say, plus ça change, plus c'est la même chose: the more things change, the more they remain the same.

A few weeks after recent elections had been concluded in Connecticut, some gremlin deep within the Malloy administration discovered that the state budget was out of balance by about a half billion dollars; this after Mr. Malloy had reached deeply into the pockets of Connecticut’s citizens -- who regularly vote Democratic in the state by a margin of two to one -- and pulled out about one and a half billion dollars in new taxes to defray his first deficit in his first unbalanced budget.

Not to worry: Democratic President Barack Obama was in charge, and it was felt that under his hand the national economy would once again bloom, following the Bush blight. Similarly, Connecticut’s economy would flower under the hand of Mr. Malloy, who pledged to re-invent the way state government does business.

Didn’t happen. A government that spends beyond its means is sooner or later slated for the poor house.

According to a recent report, “cascading financial problems,” a poetic analogue indicating the newly discovered $415 million state deficit and other distressing economic shortfalls,“became even more complicated when Republican members of the Assembly found that an additional $260 million borrowed for long-term capital projects had been moved to the monthly cash pool to pay for operating expenses.

“The $260 million was transferred by Treasurer Denise Nappier on Monday, the same day she announced that as of the end of November, $366 million in bonding funds had been transferred to the cash pool because of low balances driven mostly by the growing shortfall in the budget. That gap ranges from $365 million to $417 million.”

Not quite as eupeptic as some other Malloyalists, Ms. Nappier has also taken other necessary precautions: “Nappier also announced that because of a ‘significant decline’ in the cash pool, she was establishing lines of credit with banks totaling about $550 million -- in case more money was needed to float monthly expenses.”

Ms. Nappier evidently is not a student of Mr. Malloy’s early campaign speeches.

The lede in the report covering the smoke and mirrors pretty much says it all: “The state turned to some creative accounting Wednesday to help pay the bills, raising concerns among minority Republicans in the General Assembly.”

Ah yes, creative accounting is back.

Ms. Nappier’s announcement that she has transferred $366 million in bonding funds to an exhausted cash pool designed as a hedge to keep the state’s head above its red ink, a deficit of $415 million announced during the post-election period by Comptroller Kevin Lembo, has bestirred Republicans.

For seven months in the last year, Ms. Nappier has used capital accounts to pay monthly bills totaling $1.6 billion.

"We're going month-to-month, borrowing money out of bond proceeds, and it's just getting progressively worse," said Republican leader in the House Larry Cafero. "I don't understand how the governor can say it's not a big deal."

It’s a big deal.

Malloy’s Meanderings

Governor Dannel Malloy has been traveling a lot.

 A reporter has now put a price tag on the governor’s meanderings:

“That road show has helped fuel a jump in overtime pay for Malloy's 11-member security detail of state troopers. They have earned a total of nearly $700,000 in overtime since the governor took office. His two drivers alone made a total of more than $150,000 in overtime during that period.

“Malloy's driving costs exceed those of the two previous governors. The highest 12-month cost for former Gov. John G. Rowland's driver was $134,000 in salary and overtime. The highest 12-month figure for Gov. M. Jodi Rell's driver was $129,000, state records indicate.”

This is what we used to call in more frugal days – when, for instance, the national debt was less than $5 trillion and much of Europe, addicted to failed socialist programs, was not on the verge of collapse – a pretty penny.

Has the money been well spent?

In a word, no.

Mr. Malloy’s criticisms of preceding governors were well received during his gubernatorial campaign. The governor promised then, as he has said scores of times since, to balance the budget without employing what he regarded as deceitful budget gimmickry. The state budget was to be refigured according to Generally Accepted Accounting Principles GAAP, which would prevent future governors, including Mr. Malloy, from resorting to discreditable accounting devises to balance budgets: No more shifting accounts receivables and payables across fiscal years to achieve faux balances.

The new math in the new Malloy administration was to be transparent and real. During his first round of visitations after the election, Mr. Malloy’s budget program was nowhere near as transparent as the promised changes in accounting procedures. He traveled here, he traveled there, along with his troop of expensive state troopers, but gave very little indication of his course as governor, beyond stressing that his programs would rely on both tax increases and spending cuts. His peregrinations were a combination of listening tour and a launching ground for the good-bad news, minus specifics, later to be worked out by the governor, all the governor’s men, unions and, just possibly, Republican leaders in the General Assembly.

As it happened, Republicans were cut out of budget negotiations between the governor and union leaders; the resulting budget may never have been in balance; massive tax increases were implemented; GAPP accounting is dallying in the hallway; millions have been shifted within accounts to discharge a continuing budget deficit; and some projected savings, cost reductions to be achieved through suggestions made by state workers for instance, were never traced by the Malloy administration. Budget chief, Benjamin Barnes, the secretary of the Office of Policy and Management, told a Journal Inquirer reporter recently “that he never created a system for tracking how employees’ ideas saved — or didn’t save — money.” And, as Managing Editor of the JI Chris Powell notes inhis latest column, “government in Connecticut has gotten bigger, more pervasive, more expensive, and more complicated, a mechanism only Rube Goldberg could appreciate”

The governor and the Democratic dominated General Assembly, dependent upon unions for votes and political grunt work, have steadfastly avoided other more practical, efficient and certain means of cost cutting. One suspects that the mere mention of the phrase “privatization” of some state services is likely to have on union subservient Democrats the same effect as water had in that memorable scene in the “Wizard of Oz” in which an accidentally dousing caused the Wicked Witch of the East to shrivel into a cloud of insubstantial smoke.

New And Improved Budget Smoke And Mirrors

Unhappily for Malloyalists everywhere, at least one reporter was not sound asleep when Governor Dannel Malloy’s administration unveiled a PowerPoint presentation at a recent budget briefing showing that the budget will be in balance in 2012-13 and thereafter reap surpluses in 2013-14 of $226 million and $942 in the final year of Mr. Malloy’s gubernatorial term.

“In actuality,” the reporter wrote, “if the administration's estimates for expenditures -- including the conversion to Generally Accepted Accounting Principles -- and revenues are compared, the budget is balanced only in its first year. There's a $424 million shortfall in 2013-14 and a $180 million hole in 2014-15 -- the same year Malloy's budget office projects a nearly $1 billion surplus.” Absent the smoke and mirrors employed by previous Republican governors and Democratic dominated legislatures, future Malloy budgets are not in balance.

The budgetary magic that transforms real deficits into imaginary surpluses rests upon a skill employed by most governors that “takes advantage of the legislature’s and media's optimistic tendencies when it comes to state finances”, according to retired lawmaker William Dyson, formerly the Democratic co-chairman of the state’s Appropriations Committee for 16 years. The more often bad news can be presented as good news, the better, said Mr. Dyson: “The environment there [in the General Assembly] has always been to turn your head and look away from anything bad. There's always been this notion that next year might be better and not something we need to worry about today."

The Malloy administration’s Panglossian outlook rests on the following assumption: Mr. Malloy’s new budget will exceed Connecticut’s in name only “spending cap” by $650 million one year after enactment and by $1.1 billion two years out; however, if it is supposed that the Malloy administration will at some unspecified date in the future abide by the spending cap and actually cut spending below it – then the administration would have realized its PowerPoint predictions.

And if pigs had wings…

The mental gymnastics involved in this mode of thought – if it may be called that – has astounded North Branford Republican Rep. Vincent J. Candelora, who asked the BINGO! question: "How can you say your plan is sustainable if you count ‘cuts’ you haven't made and aren't going to find for another year?"

The magic figures presented during Mr. Malloy’s PowerPoint presentation cast a spell over some reporters who, Mr. Candelora noted, left the room whispering that Mr. Malloy’s budget proposal would result in a “bipartisan love-fest” during the upcoming legislative roustabout. "I've never been optimistic about the media taking the time to pick it apart and understand it," said Mr. Candelora. "I think they do a good job at taking things and getting them at a 30,000-foot level, but I'm not sure that kind of analytical media exists anymore."

And veteran Democratic legislative leader Dyson agrees that the legislature is easily distracted and unaccountably trusting: "I don't think the rank-and-file will pay a lot of attention to the deficit as long as the people with their finger on the pulse aren't worried. They trust all of the heavy hitters, and they will go along with what they suggest."

In the last budget session, Mr. Malloy bravely took some hits from union leaders and perennial critics in the General Assembly during his negotiations with SEBAC. The Democratic dominated General Assembly pre-approved Mr. Malloy’s prospective budget as Dannel struggled alone with the union leaders in the lion’s den. By investing the governor with near plenipotentiary powers, Democratic legislators up for re-election were not forced to leave telltale fingerprints on the final negotiated budget package, a division of labor useful both to the governor and General Assembly Democrats. SEBAC, the coalition of state unions authorized to negotiate contracts with the governor, emerged with a deal in hand so favorable to union interests that Senator Edith Prague, a union well-wisher of long standing, declared somewhat volubly that the union rank and file would be insane to reject the proposal.

“We would receive four years of job security,” union negotiators boasted in a memo to rank and file members, “an extension of our health care and pension plans to 2022, an irrevocable trust fund to insure there will always be retiree health care, three years of wage increases, a reaffirmation of the independence of the state employee health plan, and contract protection lasting through 2016. Additionally, all of the layoffs, anti-union legislation, and faculty/office closures would be reversed.” All in all, the deal was a gold brick for union leaders.

But Gold bricks are expensive, and the expenses will show below the veil once the state abandons its present system of smoke and mirrors accounting and inaugurates Mr. Malloy’s preferred Generally Accepted Accounting Principles (GAAP). At that point, Mr. Dyson said, "You may hear some suggestions from [legislative] leaders that maybe we ought to be reducing some of the growth in this new budget to remove some of the risk. It has to be done carefully, without looking like there is going to be a fight. But it can be done and it could even solidify the caucus more."

A one party state is so much more efficient when the legislative caucus and the governor are reading from the same script.

Malloy s GAAP Falls Through The Gap: Trouble In Paradise

Much fuss was made during the gubernatorial campaign by former Mayor of Stamford Dannel (then Dan) Malloy concerning the adoption of Generally Accepted Accounting Principles (GAAP), the subject of Governor Malloy’s very first Executive Order.

The old way of accounting, which had given rise to budget finagling that allowed governors and legislators less scrupulous than Mr. Malloy to fudge budget figures, was supposed to give way to GAAP, an accounting process that would scrub politics of distasteful gimmickry.

“An implementer bill passed Tuesday by the House,” according to a story in CTNewsJunkie, “postpones the full implementation of GAAP until 2014 and eliminates the $1.5 billion deficit a transition to GAAP would create. But it also promises to spend about $100 million a year over the next 15 years starting in 2014 to pay down the $1.5 billion GAAP deficit and in order to ensure that deficit doesn’t grow it allocates about $75 million in fiscal year 2013 and $50 million in 2014.”

Zach Janowski, an investigative reporter for the Yankee Institute, has reported that if GAAP were operative right now, Mr. Malloy’s projected two year surplus would disappear altogether and be replaced by yet another wearisome deficit.

So, its rather a good thing – from the point of view of politicians less scrupulous than Mr. Malloy, that GAAP has, so to speak, fallen through a legislative gap.

Ben Barns, Mr. Malloy’s budget director, adamantly denies that GAAP is being delayed: “We’re not delaying the implementation of GAAP, we’re beginning to amortize the cumulative unfunded GAAP liability starting in two years. We are moving as quickly as practical to implement GAAP. We’re intending our budget be balanced on a GAAP basis from inception through final audit starting with 2012. So I think the notion that we’re delaying GAAP is completely unfounded. It’s not the case.”

House Minority Leader Lawrence Cafero begs to differ. GAAP was Mr. Malloy’s “cause celeb” in January when he took office; he signed an executive order that said “I’ll try to do my best to implement GAAP”; in February, Mr. Malloy made GAAP a conspicuous part of his budget proposal, vowing that a portion of the surplus would be used to cover the cost of the transition to GAAP, Mr. Cafero said. Following the postponement of the transition until the next biennium, “All we know now,” Mr. Cafero said, “is that we have a governor who says one thing and does another.”

The General Assembly has put forward a 15-year plan to eliminate the accumulated GAAP deficit of $100 million. That reform is bound to collide with a General Assembly that has over the years grown comfortable with a smoke and mirrors budgeting that allows politicians to hide dying bodies under the rug.

And Connecticut itself may be a dying body, according to a report recently issued by the Institute for Truth in Accounting and the Comeback America Initiative.

The fundamental accounting difference between GAAP and Connecticut’s current modified cash accounting (MCA) is that revenue is recorded when earned in GAAP; Connecticut, utilizing MCA records revenue when cash is received.

“What they try to do under this political math,” said Sheila Weinberg, founder and CEO of the Institute for Truth in Accounting, is push any revenues into a current year budget and push any expenses out of it. “It’s just manipulation of the numbers. That’s what got the corporations in trouble. A lot of corporate leaders are sitting in jail just for games like this.”

The number fudging merely obscures but does not settle underlying problems.

“While Connecticut reported total assets of $29.7 billion,” Connecticut Budget Watch reported, “the Institute’s review of the state’s 2010 financial report revealed that there are $44 billion of off-balance sheet retirement obligations. More than $18.7 billion of the State’s assets cannot be easily converted to cash to pay state bills of $74.5 billion as they come due. These assets consist of capital assets, including infrastructure, buildings and land, and assets the use of which is restricted by law or contract. The State does not have the funds needed to pay for $63.5 billion of state obligations.

Each taxpayer’s share of this financial burden equals $49,000.

To put it in simple terms, Connecticut has spent far more than it has collected in tax revenue. As a result, every taxpayer in the state now owes the state $49,000. When state assets are sufficient to pay off the obligations – and not before – the Connecticut’s books will be in balance. In addition, one of the methods the Malloy administration has settled upon to partially redress the imbalance, retroactive tax collections, may be unconstitutional, according to former Comptroller General of the United States David Walker, the founder and CEO of the Comeback America Initiative.

“It is not normal or advisable to have retroactive tax increases,” Walker said. “Retroactive increases have been successfully challenged in court. If such an increase is challenged legally, there will be both budget and accounting implications.”

Mr. Malloy’s spokesman, Juliet Manalan, said, “The Governor is not concerned that the budget will be challenged on Constitutional grounds.”

The state’s asset shortfall and $63.5 billion in state obligations ought to be an issue of greater concern.

Foley On Malloy’s Current Services Budget Chicanery

After Tom Foley lost the gubernatorial race to then former Mayor of Stamford Dan Malloy, he did not slink away into that good night in which many losing politicians find their ultimate repose.

Mr. Foley, a former ambassador and business owner, started a research organization that develops public policy proposals, and a recent op-ed piece Mr. Foley wrote for a Hartford paper represents part of the fruit of his post campaign labors.

Mr. Foley’s column vigorously attacks “current services budgets” as a means used by shiftily, non-transparent politicians to fool some of the people all of the time, in Abraham Lincoln’s piercing phrase.

The method of reckoning getting and spending in Connecticut’s current services budget is little more than a partially successful sleight of hand used by professional politicians to “pitch their causes and confuse their constituents to suit their purposes,” according to Mr. Foley.

Governor Malloy’s current services budget first implausibly assumes that tax policy and state services will not change in the new budget year and then uses this dubious assumption to project future revenues. In planning expenses for the new budget, Mr. Foley writes, current services budget writers factor in “anticipated wage and benefit increases for the same number of state workers and inflationary increases in the cost of things the government buys.”

Under the states current services budget in the fiscal year ending in June 2012, spending will increase 9.8 percent, $1.75 billion higher than spending for this year, a figure Mr. Foley characterizes as “ridiculous.”

Using the current services budget as the base year, Mr. Malloy claims in his budget proposal to have cut spending by $1.76 billion. His proposal shows personal income taxes increasing by $879.8 million, while total taxes increase by $1,840 million. The anticipated give backs Mr. Malloy hopes to recover from unions appear in his proposal as Labor Management Savings and are presented as an expense reduction.

Most people suppose that current year budgets serve as the baseline for future budget projections. But using the current year budget as a staring point, spending in the new fiscal year will increase rather than decrease by $263 million; personal income taxes will increase by $1,443 million; and total taxes will increase by$2,466 million.

And spending for the benefit of state workers will according to Mr. Foley remain “approximately even with this year, i.e., no givebacks… On this basis, the budget deficit is being funded entirely with new taxes and no spending reductions. That is a very different story from the shared sacrifice story being used to sell the budget.”

“Sell” is the operative word. To sell his proposed budget both to the general public and union workers from whom Mr. Malloy hopes to realize a “shared sacrifice,” it helps to peddle the notion that union givebacks – i.e. spending reductions -- are a fait accompli in the new budget; they are not. And anyone who believes that real time spending in the new budget has been slashed or that personal income taxes have been increased $879.8 million rather than by $1,443 million or that inflation will not drive up the costs of various state agencies in the new fiscal year has been successfully deluded by number crunches who rely on current services budget persiflage.

“Using the current services budget,” Mr. Foley asserts, “degrades the clarity and quality of debate on the budget. It enables bureaucrats to pad budgets and move the goal line in the hope of achieving ever higher funding. It enables politicians to obscure bad news and fabricate good news. It enables advocates of government spending to demagogue anyone who questions the ever-increasing funding for their causes. It confuses the concerned citizen who is trying to understand what is going on.”

Early in his campaign with Mr. Foley, Mr. Malloy announced that he would move the state towards a new budget accounting process, Generally Accepted Accounting Principles (GAAP), so as to assure transparency and forestall the budget gimmickry that had allowed prior governors and legislatures to present a false picture of budgets though the manipulation and abuse of sound accounting procedures. According to Office of Policy Management Secretary Ben Barnes, GAAP should be operational by July 1 2013 and begin in fiscal year 2014.

Current service budgeting does for political campaigning what dishonest budget accounting does for politicians who survive budget red ink by fooling some of the people all of the time. Democratic governor of New York Mario Cuomo has honestly addressed budget issues by using immediate prior budgets rather than current service budget chicanery in measuring the progress he has made in stemming the flow of red ink.

With a gentle poke in Mr. Malloy’s easily bruised ribs, Mr. Foley asserts that Mr. Malloy’s dark angel in New York got it right and suggests, “It isn't too late for our leaders in Hartford to follow Gov. Cuomo's lead and begin making things clearer for us as they debate next year's very important budget.”