Connecticut’s ‘Cushion’ Shrinking – Will we see GAAP?

Posted on November 17, 2011. Filed under: Uncategorized |

Today’s news has Connecticut being anointed a “sinkhole” state (one of five states in the country in the worst financial position) by the nonpartisan Institute for Truth in Accounting:

According to research conducted by IFTA, while Connecticut has $29.4 billion worth of assets, only $10.1 billion are available to pay $63.4 billion of bills as they come due. IFTA’s research also indicates each taxpayer’s financial burden is $41,200.

Not a surprise, but obviously far from good news. This research comes on the heels of the Office of Policy and Management’s report late Tuesday that the budget is on pace to finish the fiscal year with a $67 million surplus, down from $88 million.

Since the personal income tax filing/payment deadline was extended following Hurricane Irene and again following Storm Alfred, it’s unclear what this revenue source will do to the budget or that anticipated surplus.

The Connecticut Mirror poses an interesting question: what does this shrinking surplus do to Gov. Malloy’s campaign promise (one heavily celebrated by Connecticut’s CPAs and the CSCPA) to implement Generally Accepted Accounting Principles?

Interesting question. What do you think? Will Connecticut’s budget ever find the money to implement GAAP?


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2 Responses to “Connecticut’s ‘Cushion’ Shrinking – Will we see GAAP?”

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Last year I was able to eke out a $88 budget surplus. To reach this surplus I was not able to pay the good people who worked hard around my house all of the money they earned last year. They were concerned, so I said, “Don’t worry, my kids will that care of that when they grow up.” Do you believe I should really be going around claiming I had a surplus?
This is exactly what the state of Connecticut did in 2010 and is now trying to do this year. For 2010 they claimed they had a $88 million dollar surplus, but they did not pay their employees all of the money they earned last year. Instead future taxpayers will have to pay it. In essence “…don’t worry, my kids will take care of that.”

The compensation that state employees earn includes salaries and benefits. Pensions and retirees’ health care benefits are a form of compensation, like salaries, which the state provides to their employees in return for work. Truthful budgeting and accounting call for the costs and obligations associated with these benefits be recorded as they are earned by the employees, rather when benefit payments are made to retirees. Because most of these costs have not been included in the budget, the state employees’ retirement plans now have an unfunded liability of more than $40 billion.

Instead of including the benefit part of compensation earned today in the balanced budget calculation, Connecticut handles the retirees’ health care benefits on a pay-as-you-go basis. Therefore the benefits earned today will be paid by future taxpayers will have to pay for today’s compensation costs without receiving any related government services.

When will the governor implement GAAP basis budget or at least common sense methods that stop pushing current costs onto future taxpayers?

Sheila A. Weinberg
Founder & CEO, Institute for Truth in Accounting

Well said, Sheila. Thank you.

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