Truth in Budgeting: Preparing Annual Budgets Using Generally Accepted Accounting Principles (GAAP)
The net impact of these annual payment delays and revenue overcounting is a cumulative GAAP negative General Fund balance of 694.3 million dollars for the year ending June 30, 1998.
Implementation of GAAP will help eliminate budget distortions. GAAP requires revenues to be recorded when they are actually earned, and expenditures to be posted when the liability is incurred. In addition, GAAP is the standard for accurate financial reporting in both the public and private sectors. GAAP budgeting will improve the quality of financial data on which key fiscal decisions are based. In this way GAAP will improve the overall efficiency of state government.
State Comptroller Nancy Wyman is working to ensure that GAAP is implemented in Fiscal Year 2000 without further delay. She is working to demonstrate the benefits of GAAP to state policymakers and to smooth the transition to GAAP budgeting. Honest state budgeting should be a top fiscal priority.
Under the current provisions of state law, GAAP budgeting is scheduled to commence in Fiscal Year 2000. Originally GAAP legislation was passed in1993, with an implementation date of Fiscal Year 1996. Unfortunately, GAAP budgeting has been postponed twice and the potential exists for another delay. In order to make sound fiscal decisions, state policymakers need accurate financial data. GAAP budgeting will provide that accuracy.
At the present time, statutory provisions require annual state budgets to be prepared using what is best described as modified cash accounting. Under this system, certain tax revenues are counted before they are actually earned, but expenditures are not recorded until months after the liability arises. This system distorts the state's true fiscal position. Furthermore, it is a system that is susceptible to manipulation. By simply rolling the payment of bills into the next fiscal year, total state spending can be lowered in the current year, and a deficit can be turned into a surplus.
Responsible Borrowing: Reducing the State's Bloated Debt Burden
By any measure, Connecticut's present debt load is too high and it continues to grow. The state has the highest per capita debt burden in the nation at 2,820 dollars. Per capita debt indicates the amount that would have to be paid by every man, woman, and child living in Connecticut to retire outstanding state bonds. In Fiscal Year 1998, the state added another 70 million dollars in outstanding debt, bringing the total to 9.3 billion dollars. As a result of this high debt total, 10.7 percent of total state spending (1.3 billion dollars) went to paying principal and interest costs on debt in Fiscal Year 1998. The interest payments alone totaled 507 million dollars. This high level of annual fixed debt service payments could cripple the state's efforts to respond effectively to fiscal challenges faced in times of economic downturn.
A certain level of debt is fully justifiable - to the extent that the debt is incurred for infrastructure projects or the purchase of assets that will benefit current and future generations of taxpayers. However, about half of the new state bonding in Fiscal Year 1998 was used to cover ongoing governmental operating costs. This questionable fiscal practice is both costly (interest must be paid) and unfair to future generations of taxpayers. Individuals not yet of voting age will be asked to shoulder much of the debt cost for current programs that will provide them with no long-term benefits.
In addition to bonded debt and notes, Connecticut carries other long-term payment obligations. These other obligations consist of the following: unpaid pension liabilities (6.8 billion dollars); workers' compensation claims (280 million dollars); employee compensated absences (260 million); and capital leases (48 million dollars). When these additional long-term obligations are added to net bonded debt and notes, Connecticut's total debt load reaches a staggering 16.7 billion dollars.
In 1999, Connecticut must resolve to reform its debt policy. Real debt reform does not simply mean applying surplus dollars to the payment of debt. Committing relatively marginal sums of money to early debt retirement does little good if, at the same time, large new debt burdens are created. In Fiscal Year 1998, 151.2 million dollars of the General Fund surplus was used for debt retirement. However, for Fiscal Year 1999, new bond authorizations of 1.4 billion dollars were approved.
Comptroller Wyman offers the following debt reform proposals for consideration. These proposals are not intended to be limiting; rather, they are provided as a catalyst for discussion on this vital policy issue.
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| Create a process that directly links the capital budget with the annual operating budget. Currently there is no formal link between debt spending decisions and the operating budget's policy objectives, performance measurements, and oversight review. In setting annual state fiscal priorities, the totality of spending commitments for programs and initiatives should be available to state policymakers. Therefore, it would be clear what percentage of total state spending is going to various programs and constituencies. In addition, it would be easier to determine which debt-financed items should be moved to the annual operating budget. | |
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| Institute stricter statutory guidelines on items that are eligible for bond funding. For example, some states require that an item cost at least 25 thousand dollars and have a useful life of at least three years in order to qualify for debt financing. | |
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| Establish a debt affordability committee comprised of debt management experts from both the public and private sectors. This committee would review the state's total outstanding bonded debt and make recommendations concerning the maximum amounts of new annual debt authorizations and allocations that the state can reasonably manage. The committee would also review present state debt policy and make recommendations for improvement. In 1990, the State of Vermont instituted such a committee and its legislature has complied with the committee's subsequent recommendations relating to the creation of state debt. | |
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| In directing any surplus dollars that may become available for debt retirement, the State Treasurer should be given the authority to either retire bonded debt or pay down the state's outstanding pension liability. The Treasurer would be instructed to make this decision based on prevailing market rates and investment earnings. Currently, the Treasurer is required to direct surplus dollars to retire bonds. It is not sound fiscal policy to pay off debt borrowed at 5 percent with dollars that could be earning double-digit returns in the pension fund. | |
Tax Rebates: Creating Revenue Stabilization with Taxpayer Equity
State Comptroller Nancy Wyman was the first Connecticut State official to recommend dedicating a large portion of state surplus dollars to tax rebates. In addition, Comptroller Wyman called for the rebating of surpluses to be permanent within state law. Although a version of the Comptroller's rebate program was implemented in 1998, it was not designed to be ongoing. The Comptroller's proposal to make rebates a continuing part of Connecticut's fiscal landscape is especially timely as the state approaches a new century.
In the past, tax bases and rates have been reduced in response to positive, but temporary economic conditions. Over the past six years, Connecticut has enacted tax reductions that, when fully phased-in, will lower state revenues by over one billion dollars. While this is a positive development for state taxpayers, it is important to ensure that these tax reductions can be sustained when the economy slows. Historically, economic downturns have resulted in tax increases for the state's residents.
Connecticut taxpayers know all too well the erratic history of tax relief in this state - years of tax reductions have been followed by years of large tax increases. The Comptroller's plan would help break the cycle. The reason is simple: rebates do not rely on future good fortune. They are paid with existing excess cash. Like a successful corporation declaring dividend payments to shareholders after a good financial year, the state would acknowledge taxpayer contributions to the surplus with rebate checks. The Comptroller's rebate program would allow the state to maintain a stable revenue base while providing meaningful tax relief. It also ensures that today's tax cuts do not become tomorrow's tax increases.
In the past seven fiscal years state General Fund surpluses have totaled 1.2 billion dollars. If the Comptroller's permanent rebate plan had been in place during those years, the average Connecticut taxpayer would have received checks of about 150 annually dollars.
Expanding Health Insurance Coverage: Improving Economic Security for Connecticut's Families
Health insurance coverage is an important indicator of social and economic well-being, both for individual families and the state as a whole. Unfortunately, despite an improving economy in recent years, the problem of the uninsured appears to be growing worse in Connecticut. State Comptroller Nancy Wyman has highlighted the importance of this issue for years and has consistently supported efforts to expand health insurance coverage to Connecticut's uninsured residents.
Two recent developments offer Connecticut an opportunity to expand health coverage to uninsured families in a cost-effective way. First, changes to federal law have separated eligibility for the Medicaid program from eligibility for cash assistance.
These federal changes offer the state flexibility to expand Medicaid to new groups previously not eligible for coverage. Second, the recent settlement with tobacco companies holds the potential to bring a significant new revenue stream to states, including Connecticut. State Comptroller Wyman believes a portion of this revenue should be used to fund a cost-effective expansion of coverage to the state's uninsured population.
A number of state legislators and advocates for the uninsured have highlighted a provision of the Social Security Act - Section 1931 of Title XIX - which allows states to disregard certain levels of income and assets for the purposes of determining Medicaid eligibility. In short, these changes will permit Connecticut to simplify the complex array of eligibility requirements that are now used for families seeking coverage. One option would be to use the more flexible eligibility guidelines that now exist for Connecticut's children and apply them to uninsured families. For example, an uninsured family of three that makes under 25 thousand 253 dollars (185 percent of the Federal Poverty Level) could be eligible for Medicaid, without a restrictive asset test. Furthermore, since the health coverage would be provided under the Medicaid program, the state would be reimbursed for 50 percent of the cost. Rhode Island has already adopted this approach and will provide Medicaid coverage for families - children and adults - up to 185 percent of the Federal Poverty Level.
Connecticut has an excellent opportunity to enhance the economic security of Connecticut's working families by expanding health coverage to the uninsured in partnership with the federal government. State Comptroller Nancy Wyman supports the efforts of the legislators and advocates who have brought this opportunity to the attention of Connecticut policymakers. She recommends that Connecticut explore this approach as an equitable and cost-effective way to expand coverage for the uninsured.
Long-term Care: Exploring Ways to Control Costs and Enhance Choice
Problems in the area of long-term care have been well documented and demographic trends will make the situation even worse in the years to come. Most of those requiring long-term care services are over the age of 65. Not only is this population growing in numbers, but people are also living longer. According to the Census Bureau, those age 85 and above are the fastest growing segment of the population. As the baby-boom generation ages, enormous demands will be placed on the long-term care system. To avoid a crisis, planning must begin now.
Long-term care is expensive and the costs continue to grow. In Fiscal Year 1998, long-term care services accounted for almost half of the 2 billion dollars spent on Medicaid in Connecticut. Medicaid is one of the largest single items in the state budget and has the greatest potential for rapid growth, primarily due to public funding for long-term care.
The current long-term care system is fragmented and has a heavy bias toward institutional care. At the same time, national estimates indicate that about two-thirds of those who need long-term care could be cared for at home or in the community with proper support. Nursing home care is expensive in Connecticut - about 73 thousand dollars per year for private pay patients - and potentially inappropriate for many seniors. Home and community-based services can offer cost-effective alternatives that could be expanded to meet growing demand. Not only would this save money, but it would also help to enhance quality of life. Seniors and others served by the long-term care system value their independence and most would prefer to remain in their homes and communities for as long as possible.
In response to these growing problems, State Comptroller Nancy Wyman is proposing to form a task force to explore some possible solutions. The task force would be a public and private partnership, consisting of policymakers with expertise in the field of long-term care. Task force members could include state legislators, officials from relevant state agencies, advocates, consumers and providers, including representatives of nursing homes, as well as home and community-based service agencies.
The State Comptroller's proposed task force would explore ways to: