Delve deeper to find flaws in budget conversion idea

In the article "Jobs central theme for gubernatorial hopefuls," published June 11 about the candidates for governor, there was a comment by Democrat Dan Malloy that the state should move to adopt the accounting rules known as Generally Accepted Accounting Principles, or GAAP.

I believe Mr. Malloy is confused. The state comptroller has always issued the state's financial statements on a GAAP basis and in accordance with national accounting and financial reporting standards for state and local governments. It is the state's budget that is prepared and accounted for on a cash basis and results in a difference between GAAP statements and budget statements. In Connecticut, GAAP standards only apply to accounting and not to budgets.

I was the executive financial officer in the state Office of Policy and Management (OPM) during the Lowell Weicker administration. The office of the EFO was created by Gov. Weicker to proscribe financial policies and practices for executive state agencies. One of my projects beginning in 1993 was to research and develop recommendations and draft legislation to convert the state budget to a GAAP basis. It was a joint project of the OPM and office of state comptroller, but involved the auditors of public accounts, Office of Fiscal Analysis and state agencies.

"The State of Connecticut GAAP Budget Conversion Plan," dated Feb. 1, 1994 was presented to the Joint Committee on Appropriations of the General Assembly. It was prepared in response to Public Act 93-402, which stipulated that the comptroller and OPM prepare a conversion plan for the use of GAAP in preparation of the state budget. The report is lengthy (65 pages) and details the complexity of such a conversion. Good reading if you have a problem falling asleep.

There are a variety of reasons why the basis for accounting and budget are different (cash vs. accrual). When these differences arise, there will be a required reconciliation of those differences, and the comptroller always provides that reconciliation in the notes to the financial statements in the state's annual financial report. Incidentally, this situation exists in many state governments, and the rating agencies (Moody's, Standards and Poor, and Fitch) all take it into consideration in determining the state's credit rating, and all three continue to give Connecticut a solid AA credit rating.

While the goal of this conversion was laudable, it had some serious budgetary consequences. After extensive analysis it was determined that in the first year of implementation, $57 million would have to be added to the state budget. The cumulative GAAP deficit of $495 million at the time would have required an annual appropriation of $33 million over 15 years.

As you can imagine, the state legislature was reluctant to appropriate funds for what many considered just an accounting change. And so the effort was abandoned. Incidentally, the cumulative GAAP difference as of June 30, 2009, had grown to over $2.6 billion.

In the current fiscal situation, I can't imagine any governor or legislature taking that one on again.

Andrew Urban lives in Waterford.