Bond Buyer magazine published an article today that introduces readers to the annual “budget season,” which is now getting underway for many state governments. It was written by William Glasgall, director of state and local programs for The Volcker Alliance. Glasgall provides an outline of less-than-truthful ways that governments manipulate budget accounting to make it appear that spending doesn’t exceed revenue, in light of state constitutional and/or statutory “balanced budget” requirements.
Glasgall also provides an interesting comparison between New York City and the state of Illinois. He argues that New York City has been compelled to adopt and maintain GAAP-based budgeting since its near-bankruptcy in 1975. That may well explain how spreads on New York City general obligation bond yields over risk-free debt have been so narrow, compared to what Illinois (and its taxpayers and citizens) are now shouldering. Riskier bonds tend to have to pay higher yields, and adopting more responsible budget reporting can benefit challenged jurisdictions like Chicago and Illinois.
The link to The Bond Buyer version of this story is here. It will be available at the Volcker Alliance website later today.