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www.CTCPAs.org Connecticut’s State and Local Government Crisis: Fixing Our Future 1 www.CTCPAs.org Full Accrual=Long-Term Health Modified Accrual=Short-Term Health Either of the above are GAAP Budget Basis can be anything! “Modified Cash” for the State 2 www.CTCPAs.org SHORT-TERM FINANCIAL HEALTH 3 Basis of Accounting www.CTCPAs.org • Government Funds – Modified Accrual – Measures flow of “current financial resources” – No long-term assets are added to equity • Capital Assets are expensed and not depreciated • Receivables not collected in 60 days are deferred – No long-term liabilities are subtracted • New debt is recorded as a revenue • Payments of principal and interest are expensed 4 State of CT–ST Balance Sheet www.CTCPAs.org 5 Equity Compared to Others Source: National Association of State Budget Officers The Fiscal Survey of the States – Spring 2013 www.CTCPAs.org 6 www.CTCPAs.org LONG-TERM FINANCIAL HEALTH 7 State of CT – LT Balance Sheet www.CTCPAs.org Summarized for discussion purposes from page 29 of 6/30/12 audited statements 8 Pension & OPEB Obligations www.CTCPAs.org • What is this? – Benefits we owe retired employees – Benefits that current employees have earned • OPEB - What is included in the liability? – Being “amortized” onto the books starting in 08 – On these 6/30/12 statements only 5/30th included – That means 25/30th are not included yet! • Most of this debt (83%) is NOT on the books yet! 9 Percent of Pension Funded www.CTCPAs.org Source: The Pew Center on the States – 2012 report 10 www.CTCPAs.org Connecticut is one of 17 states that has not funded any of its OPEB Obligations Source: The Pew Center on the States – 2012 report 11 OPEB Costs per Year www.CTCPAs.org Source: The Pew Center on the States 12 www.CTCPAs.org Source: Truth in Accounting’s “The 2012 Financial State of the States” 13 www.CTCPAs.org Total Liabilities & Unfunded Obligations Per Taxpayer $50,000 $46,100 $45,000 $42,700 $39,600 $40,000 $35,000 $30,000 $24,920 $25,000 $20,000 $18,000 $16,400 $15,000 $10,000 $5,000 $Connecticut New Jersey Hawaii Illinois California Michigan Source: Truth in Accounting Institute. State of the States Report. 14 State of CT–LT Balance Sheet www.CTCPAs.org Liabilities are FIVE times the Assets 15 www.CTCPAs.org BUDGET BASIS 16 Spending Cap www.CTCPAs.org • Basic Rule: – Budgeted Expenditures Must Equal Est. Revenues • Expenditure Limitations: – % increase capped at higher of: • Annual growth in personal income • Annual inflation • Excludes: Debt Service, Certain Grants, Mandates • Any Surplus must: – Reduce Debt or Increase the Rainy Day Fund – Exception by Gov. and 3/5ths Gen’l Assembly • (This has normally occurred in surplus years) 17 www.CTCPAs.org Where have all the Surpluses Gone? Source: Connecticut’s Office of Fiscal Analysis 18 www.CTCPAs.org Recommendations from the CPAs! 19 We Wanted Audit Scope Limitation We Got Basis of Accounting www.CTCPAs.org Not for Operating Fund the ARC 20 www.CTCPAs.org Our Recommendations for the State • Real “Rainy Day Funds” – Set a 10% to 15% threshold – No offsetting negatives! – Excess committed to pensions/OPEB Obligation • Strategic Planning including: – Long-term budgeting (5 to 10 years out) – Manage the Full Accrual Balance Sheet • It can no longer be business as usual 21 www.CTCPAs.org We must FIX OUR FUTURE now! 22 www.CTCPAs.org www.KeepingAmericaGreat.org Art Renner, CPA, Executive Director Connecticut Society of CPAs [email protected] Marcia Marien, CPA, Partner O’Connor Davies, LLP [email protected] 23