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.
Showing posts with label Walker. Show all posts
Showing posts with label Walker. Show all posts
Saturday, June 4, 2011
Wednesday, January 26, 2011
Governor Malloy’s Budget Intentions
Governor Dannel Malloy announced in a meeting with his commissioners of state agencies that he would cut $2 billion from the projected annual costs of state services. Mr. Malloy proposes to eliminate 55% of the state’s deficit with spending cuts and 45% with tax increases.
Three points ought to be considered. First, the state debt Mr. Malloy hopes to discharge with his particular distribution of spending cuts to tax increases is a projected deficit. In the past, such projections have not been accurate. The final figures for the next few fiscal years may be higher.
Second, just as a man is no island unto himself but each is a part of the whole, so no state is an island unto itself. Mr. Malloy has said or implied repeatedly, both before and after his election, that his approach to budget matters will make Connecticut competitive with other states or, at the very least, will not tilt the economic playing field in favor of competing states, so that the flow of business, entrepreneurial and human capital -- most especially young people who have been fleeing the state for greener pastures elsewhere – might be reversed in Connecticut’s favor.
In this regard, it may be important to point out that the newly installed Democratic Governor of New York, Mario Cuomo, has vowed to attack his state’s budget deficit without recourse to new taxes. The Cuomo plan involves closing a $10 billion budget gap by freezing wages and taxes, limiting spending growth to the rate of inflation and consolidating departments, while Mr. Malloy proposes to raise nearly $1.7 billion in new revenue. Mr. Cuomo has also proposed a cap on property taxes, setting up a fight to the death struggle between the governor and a tax thirsty state legislature.
Third, Mr. Malloy must get his budget project approved by a Democratic caucus that in the past has not been in favor of cuts adversely affecting unions credited with Mr. Malloy’s election as governor. Effective cuts of this kind would be permanent, reaching far into the future; they also would represent disinvestments in areas where the state’s growth in spending has in the past been resistant to reductions. An end to binding arbitration, for instance, would allow municipalities to control their own destinies. One supposes that measures of this kind – precisely because they would be effective in controlling future costs – would be vigorously resisted by Speaker of the House Chris Donovan, who in the past has shown himself to be unusually attentive to union interests.
Both co-chairwomen of the budget-writing Appropriations Committee, Sen. Toni Harp and Rep. Toni Walker, cautiously greeted Mr. Malloy’s announced intentions. Ms. Walker said she looked forward “to seeing where exactly those reductions will come from. We have nothing concrete yet." It is the Democratic dominated legislature that first adjusts and then sets in concrete Mr. Malloy’s budget plan.
In the meeting with his agency heads, Mr. Malloy unfurled four principles guiding his budget decisions: He would refuse to borrow money through bonding to pay down current expenses, “absolutely fund our pension obligations next year - and all years,” not rely on early retirements to cut expenses, and force state government to live within its means by changing the state “in a profound way.”
Mr. Malloy’s intentions will become clearer after he presents his budget to the Democratic dominated General Assembly. Connecticut’s red ink arises from a disproportion between revenue and spending. Debit in Connecticut has not been caused because legislators and previous governors have been uninventive in creating “tax investments” that increase revenues. The state is up to its knees in red ink because the rate of spending has increased precipitously over the last two decades following the institution of an income tax that made it possible to boost revenues and add surpluses to the general fund. Consequently, the ravenous beast that was fed got fatter – and considerably more demanding. It is now eating up the state’s seed corn.
It took the state of Connecticut about ten years to recover jobs lost during the milder recession that followed the institution of the Lowell P. Weicker Jr. Income Tax, which turned out to be a license to spend. Any solution to the disparity between getting and spending that does not PERMANENTLY reduce spending by about 25%, while holding the line on taxes during what promises to be for Connecticut a far more protracted recession, will not succeed in properly positioning the state relative to contiguous states so that, when the recession gives way to a rising tide, Connecticut’s ship of state can speed forward on the crest of the tide, rather than being stranded on a sand bar of its own making.
Three points ought to be considered. First, the state debt Mr. Malloy hopes to discharge with his particular distribution of spending cuts to tax increases is a projected deficit. In the past, such projections have not been accurate. The final figures for the next few fiscal years may be higher.
Second, just as a man is no island unto himself but each is a part of the whole, so no state is an island unto itself. Mr. Malloy has said or implied repeatedly, both before and after his election, that his approach to budget matters will make Connecticut competitive with other states or, at the very least, will not tilt the economic playing field in favor of competing states, so that the flow of business, entrepreneurial and human capital -- most especially young people who have been fleeing the state for greener pastures elsewhere – might be reversed in Connecticut’s favor.
In this regard, it may be important to point out that the newly installed Democratic Governor of New York, Mario Cuomo, has vowed to attack his state’s budget deficit without recourse to new taxes. The Cuomo plan involves closing a $10 billion budget gap by freezing wages and taxes, limiting spending growth to the rate of inflation and consolidating departments, while Mr. Malloy proposes to raise nearly $1.7 billion in new revenue. Mr. Cuomo has also proposed a cap on property taxes, setting up a fight to the death struggle between the governor and a tax thirsty state legislature.
Third, Mr. Malloy must get his budget project approved by a Democratic caucus that in the past has not been in favor of cuts adversely affecting unions credited with Mr. Malloy’s election as governor. Effective cuts of this kind would be permanent, reaching far into the future; they also would represent disinvestments in areas where the state’s growth in spending has in the past been resistant to reductions. An end to binding arbitration, for instance, would allow municipalities to control their own destinies. One supposes that measures of this kind – precisely because they would be effective in controlling future costs – would be vigorously resisted by Speaker of the House Chris Donovan, who in the past has shown himself to be unusually attentive to union interests.
Both co-chairwomen of the budget-writing Appropriations Committee, Sen. Toni Harp and Rep. Toni Walker, cautiously greeted Mr. Malloy’s announced intentions. Ms. Walker said she looked forward “to seeing where exactly those reductions will come from. We have nothing concrete yet." It is the Democratic dominated legislature that first adjusts and then sets in concrete Mr. Malloy’s budget plan.
In the meeting with his agency heads, Mr. Malloy unfurled four principles guiding his budget decisions: He would refuse to borrow money through bonding to pay down current expenses, “absolutely fund our pension obligations next year - and all years,” not rely on early retirements to cut expenses, and force state government to live within its means by changing the state “in a profound way.”
Mr. Malloy’s intentions will become clearer after he presents his budget to the Democratic dominated General Assembly. Connecticut’s red ink arises from a disproportion between revenue and spending. Debit in Connecticut has not been caused because legislators and previous governors have been uninventive in creating “tax investments” that increase revenues. The state is up to its knees in red ink because the rate of spending has increased precipitously over the last two decades following the institution of an income tax that made it possible to boost revenues and add surpluses to the general fund. Consequently, the ravenous beast that was fed got fatter – and considerably more demanding. It is now eating up the state’s seed corn.
It took the state of Connecticut about ten years to recover jobs lost during the milder recession that followed the institution of the Lowell P. Weicker Jr. Income Tax, which turned out to be a license to spend. Any solution to the disparity between getting and spending that does not PERMANENTLY reduce spending by about 25%, while holding the line on taxes during what promises to be for Connecticut a far more protracted recession, will not succeed in properly positioning the state relative to contiguous states so that, when the recession gives way to a rising tide, Connecticut’s ship of state can speed forward on the crest of the tide, rather than being stranded on a sand bar of its own making.
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