State budget chief says GAAP is here

Just over one year ago, in his first act following inauguration, Gov. Dannel P. Malloy signed Executive Order Number 1 directing the state to implement Generally-Accepted Accounting Principles, or GAAP. Today, I am pleased to report that GAAP is here.

Specifically, our implementation of GAAP is on track with the plan laid out in the executive order and in the Conversion Plan submitted by Office of Policy and Management to the General Assembly. The myth has developed that somehow Gov. Malloy "backed off" implementing GAAP right away. Not true. With Exec Order No. 1, Gov. Malloy immediately moved the state to GAAP.

We have already done the hardest and most important part - ensuring that our revenues are sufficient to cover our expenses for the year based on the transparent rules of GAAP. We also made some important legislative changes last Spring that are necessary to carry those efforts forward into the future, permanently. What remains are details - modifications to our financial systems and procedures.

It is about time we started keeping track of your money under the same rules that apply to everyone else.

What are those rules, and how are they different from what Connecticut used to do? Connecticut used to avoid counting expenses it had already made while counting revenue it did not yet have. It's like going to the grocery store and paying for groceries but not deducting the cost from your checkbook. At the same time, you record deposits in your checkbook before they are received. It was a way of cooking the books so that it appeared we had more money than we actually had. No more.

One year, to close a budget gap, the state decided to postpone payments to nursing homes, supposedly "cutting" millions of dollars in Medicaid expenses by delaying them past the end of the year. The Malloy administration reversed that policy. Another trick that GAAP will expose is to delay action on liabilities to avoid the expenditures. Like a child with his hands over his ears, Connecticut has ignored legal and environmental liabilities until the courts are done deciding, even though we well knew that the claims existed. Under GAAP, money needs to be set aside to cover potential liabilities based on standards set by the Government Accounting Standards Board.

This is the heart and soul of GAAP: acknowledge the truth about our financial health. We may not like the truth, and we may choose to deal with it in any number of ways, but we need to be forthright about our predicament. GAAP gives us the standards for determining that truth, instead of letting everyone make up rules as they go.

For many years, the Comptroller has prepared financial statements in accordance with GAAP after the year is over. Most years, there has been a GAAP-deficit - a shortfall that had been covered up with budget gimmickry. Over time, these negative results have added up, so that we have a cumulative GAAP deficit, also called a negative fund balance, of over $1.7 billion. The Malloy administration has not contributed one penny to this deficit, which developed over years, but we have set on a wise course to address it. First, we stopped the bleeding red ink. Next, we have set a 15-year target for offsetting the entire debt.

This year, we will set aside $75 million of additional money to ensure that our revenues meet our expenditures on a GAAP basis. Next year that number is $50 million. The mechanics of implementation and payment of the long overdue bills will take some time, but Connecticut should be assured that the tough part - living within our means - has already been accomplished and is the law of the land today in Connecticut.

Benjamin Barnes is the secretary of the Office of Policy and Management.