Transition To GAAP Delayed Two Years, Republicans Critical
Republican lawmakers wasted no time criticizing Gov. Dannel P. Malloy for seemingly postponing the adoption of Generally Accepted Accounting Principles, a fiscal accounting practice that was a big part of his campaign platform and the subject of his first executive order.
“It’s sad to just see business as usual,“ Rep. Vincent Candelora, R-North Branford, said Wednesday. “It’s these types of decisions that got us into this mess in the first place.”
An implementer bill passed Tuesday by the House postpones the full implementation of GAAP until 2014 and eliminates the $1.5 billion deficit a transition to GAAP would create. But it also promises to spend about $100 million a year over the next 15 years starting in 2014 to pay down the $1.5 billion GAAP deficit and in order to ensure that deficit doesn’t grow it allocates about $75 million in fiscal year 2013 and $50 million in 2014.
“It’s a huge promise that was broken,” Candelora said.
But Malloy’s Budget Director Ben Barnes doesn’t necessarily believe the administration has broken any such promise.
“We’re not delaying the implementation of GAAP, we’re beginning to amortize the cumulative unfunded GAAP liability starting in two years,“ Barnes said Wednesday. “We are moving as quickly as practical to implement GAAP.“
“We’re intending our budget be balanced on a GAAP basis from inception through final audit starting with 2012. So I think the notion that we’re delaying GAAP is completely unfounded. It’s not the case,” Barnes added.
House Minority Leader Lawrence Cafero, R-Norwalk, said Malloy used GAAP as his “cause celeb” when he took office in January. Then he signed an executive order that said “I’ll try to do my best to implement GAAP,” and in February he resurrected it as part of his budget proposal saying a certain percentage of the surplus would be used to cover the cost of the transition to GAAP, Cafero said. Now he’s postponed the transition until the next biennium.
“All we know now is that we have a governor who says one thing and does another,” Cafero said.
But Rep. Tom Reynolds, D-Ledyard, said that’s absolutely not a fair assessment of the legislation.
Reynolds said there’s a misconception that Malloy’s first executive order asked the state to fully implement GAAP.
He said the executive order created a working group to come up with a plan to make recommendations about the transition to GAAP. He said those recommendations from Barnes became the basis for parts of the legislation the House passed Tuesday and the Senate was debating Wednesday afternoon.
He said the legislation the House passed allocated $75 million in 2013 and $50 million in 2014 to assure the GAAP deficit doesn’t grow between now and 2014. He said it makes sense to transition slowly to GAAP because none of the state managers know how to budget using GAAP and the state’s Core-CT software system is not set up to function under GAAP accounting.
“There were some practical limitations,” Reynolds said.
He applauded the legislation which creates a 15-year plan to eliminate the accumulated GAAP deficit of $1.5 billion.
“I expect it will take at least a decade or two to resolve the cumulative unfunded liability given the large size of it, I mean it’s a billion and half dollars on top of major unfunded liabilities in the areas of pensions, post employee benefits, lack of a rainy day fund—we have a lot of big financial holes to fill,“ Barnes said. “We’ll fill this one along side of those but we need to address all of our concerns at once which will naturally result in it taking a little longer.”
Rep. Craig Miner, R-Litchfield, said it wasn’t so much the delay in implementation of GAAP because he doesn’t believe the pace Malloy is setting will break the bank. But he is concerned with the bill the House passed Tuesday that changes how state agencies pay for their expenses.
He said it’s a small piece of the big fiscal puzzle, but allowing state agencies to pay their expenses over an indefinite period of time or from one year to another is a fiscal nightmare in the making. He said it contributes to too much unknown.
He said currently state agencies have 30 days to account for the money, which would otherwise lapse at the close of any fiscal year. He said the legislation passed yesterday allows the agencies an “indefinite amount of time” to pay the money for expenses occurred in one fiscal year.
Reynolds disagrees with Miner’s interpretation. He said since the state Comptroller has to close the books for the previous fiscal year on Sept. 1, all state agency money that is lapsed will need to be spent by that time.