Setting Standards for Summer Storms

Posted on August 13, 2012. Filed under: Uncategorized | Tags: , , , |

Are you worried about the possibility of losing power for a week because of a summer storm? At this time last year, thousands of Connecticut residents suffered through that experience because of Tropical Storm Irene. Then the freak Halloween snow storm arrived in late October and plunged many of us into darkness again.

Government officials pledged to take action to ensure that power companies will be better prepared for future emergencies. After months of debate, two weeks ago, Governor Malloy signed An Act Enhancing Emergency Preparedness and Response into law.

Does the law establish strict new standards for utility companies? Or find funding sources to pay for projects that move overhead wires underground? Or create new teams that can help clear our roads after weather emergencies?

Well … not exactly. Although Section 3 of the Act does require the “Public Utilities Regulatory Authority (to) initiate a docket to establish industry specific standards for acceptable performance,” it does not actually establish any standards. Nor does it explicitly identify any sources of funds to finance new teams or other response capabilities.

Instead, the Act appears to call on our existing government officials to work with our existing utility company executives to modify our existing plans and standards. Will this result in any improvement to the status quo? We can certainly hope so … but we might also wish to replenish our supplies of candles and bottled water, just to be safe!

Contributed by Michael Kraten, PhD, CPA, Accounting Professor at Providence College and President of Enterprise Mgt. Corp.

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Connecticut Tourism: A $27 Million Investment

Posted on June 20, 2012. Filed under: Uncategorized | Tags: , , , |

If you had the ability to direct the expenditure of $27 million of state funds, where would you apply the money?

To the repair of our crumbling bridges and roads, perhaps? Or to our underfunded systems of public education and health?

If you’d rather spend the cash on a flashy advertising campaign, you’re in luck! Our State Office of Tourism has just launched a campaign that features five videos, all of which are now available for viewing on YouTube.

The tag line? Still Revolutionary, a phrase that purportedly refers to the state’s “revolutionary spirit that still remains today.”

Oddly enough, the videos do not appear to mention Nathan Hale, Connecticut’s most illustrious revolutionary.

Hale, a Yale alumnus and Connecticut’s official State Hero, was executed by the British for spying during the American Revolution.

According to legend, when given the choice of betraying his fellow patriots or surrendering his life, Hale retorted “I only regret that I have but one life to lose for my country.” The British Army proceeded accordingly.

Nevertheless, neither Hale’s homestead in Coventry, Connecticut, nor his famous statue on Yale University’s historic Old Campus, appear in the videos at all.

The advertisements do, however, feature baby boomers who sip wine in vineyards and adorable tykes who gaze at a beluga whale through an aquarium tank.

These images, though hardly “revolutionary,” are quite striking. Nevertheless, is the State prepared to measure whether this $27 million expenditure will achieve a satisfactory return on the taxpayer’s investment?

Contributed by Michael Kraten, PhD, CPA, Accounting Professor at Providence College and President of Enterprise Mgt. Corp.

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It Costs Nothing To Adopt GAAP

Posted on May 7, 2012. Filed under: Uncategorized | Tags: , , , |

Have you heard about the recent brouhaha regarding our state’s ability to “make good” on Governor Malloy’s Executive Order #1 to adopt Generally Accepted Accounting Principles (GAAP)? Our political leaders are now balking at the characterized $1.7 billion “cost” of adopting GAAP.

As Certified Public Accountants, of course, we have a responsibility to correct any mischaracterizations regarding GAAP. So here is a very simple declaration for our leaders: it costs nothing to adopt GAAP.

At the present time, because the State is not employing GAAP, many costs and expenses are not recorded until they are paid. As a result, when they are incurred, the State simply defers payment into future year(s) in an unmeasured and unmanaged fashion.

Because the State is nominally required to balance its budget each year, the timely recording of these costs and expenses would force our leaders to fund these commitments in a transparent manner. Indeed, it might even encourage them to act prudently by avoiding such commitments if the resources are not available to finance them.

GAAP is simply a set of measurement principles. If our costs appear to be higher under GAAP accounting than under an alternative method of accounting, we can’t blame GAAP for the additional costs. If we do, then we’d only be “blaming the messenger” (or, in this case, the “measurer”) for our own profligacy.

Contributed by Michael Kraten, PhD, CPA, Accounting Professor at Providence College and President of Enterprise Mgt. Corp.

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The State Budget: Where’s The Flexibility?

Posted on May 20, 2011. Filed under: Uncategorized | Tags: , , , |

Budget flexibility. In today’s economy, it’s the crucial ingredient of fiscal stability.

Governor Malloy is certainly comfortable with flexible budgeting approaches; his threat of 4,742 layoffs essentially represented a “Plan B” fall-back option that would have been triggered if union concessions failed to materialize. Fortunately – or unfortunately, depending on your political leanings – the unions agreed on terms and the Governor proceeded with his “Plan A” proposal instead.

As politicians, reporters, and citizens pore over the details of Plan A, though, they are noticing that some of its projected savings are “harder” in nature and substance than others. The elimination of certain longevity payments, for instance? That certainly leads to “hard” savings. But medical insurance cost savings that are attributable to healthier lifestyles? Those are “soft” at best; after all, who knows whether they will ever materialize?

As all competent managers know, “getting the budget right” isn’t always as important as “knowing what to do if the budget proves to be wrong.” Management accountants develop flexible budgets to address such considerations; risk managers create contingency plans for the same reason.

We can certainly applaud the Governor for fulfilling his promise to balance the budget, even if he relies upon a collection of “soft savings” in order to do so. Nevertheless, we can also inquire – with a reasonable degree of professional skepticism – about what the Governor has in mind regarding Plan B if these soft savings never actually materialize.

Contributed by Michael Kraten, PhD, CPA, Accounting Professor at Providence College and President of Enterprise Mgt. Corp.

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Mixed Messages For Rail Commuters

Posted on December 13, 2010. Filed under: Uncategorized | Tags: , , |

Southwestern Connecticut commuters are undoubtedly hoping that the Metro-North Railroad system will survive the inevitable forthcoming array of state budget cuts. They were recently left scratching their heads, though, by a pair of mixed messages from Governor Jodi Rell.

At first, the Governor proudly spoke at the unveiling of a new batch of rail cars that are now being added to the New Haven Line. “I couldn’t be more proud if I was the mother of this train,” boasted Rell, as she inspected the state’s $700 to $900 million purchase.

But then, just nine days later, the Governor proposed eliminating all three of Metro-North’s feeder rail lines that funnel commuters to the main line! Elimination would free up $33 million in the state budget, but without plans in place to compensate by increasing the limited parking lot capacity at the main line’s rail stations, such a move would likely make it impossible for many current feeder line passengers to access rail service and ride the new cars.

Is it reasonable to spend $900 million on train cars and then eliminate feeder access to those cars, and the rest of the rail system, to save $33 million? Rail passengers can only wait patiently to learn whether Governor Elect Dan Malloy will support his campaign promise to expand our state’s passenger rail system.

Contributed by Michael Kraten, PhD, CPA, Accounting Professor at Providence College and President of Enterprise Mgt. Corp.

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