Follow-Up to 11/9/10 Governmental Task Force Meeting

Posted on November 11, 2010. Filed under: Uncategorized |

November 10, 2010

To: my fellow task force members

From: Paula Hiltz

Thank you for the great dialogue last evening.  I’ve been reflecting further on our conversation and our mission, themes, etc. and would like to share some of my thoughts with the group.

On the topic of mission and scope of our task, I thought a lot about Mark Zampino’s comment about our being CPAs and what that really means.  Mark reminded us that as CPAs, perhaps our greatest asset is that we are independent, and to link up with another group would mitigate this asset.  Along those lines, Mike Kraten’s comment about our needing to focus the state’s attention to the Balance Sheet, as well as an accurate Income Statement is also where our expertise and strength lie.

In addition to being a CPA with an undergraduate degree in Accounting, I hold a masters degree in Finance.  When I was studying for my Finance degree, I often was asked why I was pursuing the Finance degree because the perception by many was that this was redundant.  In layman’s terms, the easiest way to state the difference between the two disciplines is that accounting’s primary focus is on what has already happened, and how to report that in an accurate manner.  Finance’s primary focus is on what will happen in the future and to predict this with as much certainty as reasonably possible so that a business (or government) can be proactive in anticipation of financial impacts.

Reflecting on this distinction, I think we can take this further into defining our scope.  As a group of CPAs, our focus should be where our expertise lies:  Financial statement analysis and accuracy, as well as independent interpretation of these statements and their implications.  This plays nicely into the education “road show” that was proposed last night.  It also capitalizes on our credibility as a profession and will help us to engage the public with our grass roots agenda.

With that said, however, I do anticipate that as we get far enough along in the process, we will be asked what we would do if we were in the government’s shoes.  I say this because I watched a video feed of the Governor’s economic advisory panel’s presentation to legislative leaders in November 2009 and this exact challenge was voiced by legislators to the panel of economic experts.  I think we should all be prepared to answer this question with decisive professional clarity.  Perhaps we should have a “bullet point” short answer “cheat sheet” at our disposal for on the spot questions, but then have a longer document prepared, similar to that of the Ohio CPA task force, to which we can direct interested parties.

In addition to the much-discussed issue of state employee and retiree pension and health benefits (and total compensation as compared to the private sector), I would suggest that other items on this list should include (not in any particular order):

-Move immediately to full GAAP accounting.

-Allow state agencies to adjust staffing levels, both downwards and upwards, depending on the needs of the organization (as evidenced by business proposals).

-Remove the barrier to reduction of education budgets.  In tandem with this, regionalize school districts, as appropriate.  According to a legislator with whom I have spoken, there has been a study done which concludes that the most efficiently run school district, where true economies of scale can be achieved, is one in which the student population is 7,500.  There are many school districts that can be consolidated, schools can be closed/sold/repurposed, administrators and supporting redundant positions eliminated that might achieve these economies of scale.  This would help the state’s budgets by reducing the necessary dollars of aid to cities and towns.  There would also need to be safeguards put in place so that towns would not simply raise their property taxes through the roof to accommodate the shortfall.  Per the Ohio task force document, this has been successfully implemented in Maine.

-Mandate regionalization of other town services as appropriate (police/public works/trash removal/property tax assessors/town clerks…)

-Evaluate the logic of providing Medicaid coverage in excess of federal mandates, and cut as appropriate.  Per Tom Reynold’s white paper, this is one of the largest line items in the budget.

-Eliminate state agencies which provide services for which there are private sector providers of the same service.  In the Governor’s economic advisory panel presentation referenced above, it was established that it costs the state government an average of 2.4 times the amount to provide the same service that is provided in the private sector.  They know this because there is tangible comparable data available.

-Consider privatization of other state services.  Look to other states for ideas.

-Currently, the state treasurer has unilateral power, granted by Governor Rell in response to the financial crisis, to borrow any and all short term funds she deems necessary to fund current operations.  She is not required to consult with the legislature.  This power should be immediately rescinded.  Because of the budget shortfall, these short term funds will automatically need to be bonded (and added to the future budget) because there is no ability to pay them back within the required 1 year term.  The government should be compelled to live within its means.  I have a copy of Governor Rell’s proclamation letter, if anyone is interested.

I have purposely left off any mention of revenue generation at this point.  As discussed last evening, I agree that any discussion on this topic at this point will overshadow (in legislator’s eyes) the priority of first getting spending under control, THEN, seeing where we stand so we can determine how to move on the revenue side.

I am sure that many of you have other ideas that I have not outlined above which should be included for consideration, and perhaps some of mine should be excluded, but my point is that there is no “silver bullet” quick answer here.  Just as with any business, a series of responsible decisions over multiple facets of an organization are necessary to make a meaningful impact on costs.

Thanks to all of you for allowing me the time to express my opinions.

I look forward to a productive meeting on November 22.

Best regards,

Paula Hiltz

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