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Truth in Accounting Spring Quarterly Round-up eNewsletter Truth in Accounting Holds Springfield Legislative Workshop; Legislation Calls for More Transparency During the Illinois Budget Process; Moody's State Debt Analysis Now Includes Pension Obligations
Truth in Accounting Spring 2011 Quarterly Round-up
Truth in Accounting Holds Springfield Legislative Workshop:
The Institute held a Legislative Workshop in Springfield, IL on February 9th to raise awareness among the legislators on the need for transparency and accountability in the Illinois budget. Sheila Weinberg discussed governmental accounting whereby the state's budgets are prepared on a cash, or checkbook basis, with no accounting for certain long-term liabilities such as employee pension and health care obligations. In addition, when changes are made to the state's long term obligations, such as an early retirement plan for teachers, no computations are being made on the cost to the state of such a change.
The bi-partisan group of seven legislators (from left: Rep. Tom Morrison, Dave Winters, Elaine Nekritz, LaShawn Ford, Lisa Dugan, Karen May, David Leitch, Sheila Weinberg in center) agreed that more can be done to improve the budget process. Several suggested the assistance of independent CPA's to assist in the analysis. One representative requested "best practices" information from other states.
The group overall supports the Long Term Accounting Act, introduced on February 24th by Rep. Mike Tryon. This Act lays out guidelines to strengthen the state's special responsibility to disclose its actions in a timely and useful way.
Legislation Calls for More Transparency During the Illinois Budget Process:
State Representative Mike Tryon (IL-64th District) has introduced the Long-Term Accounting Act into the Illinois legislature. The Act calls for increased timeliness, transparency and accountability during the state budgeting process.
"Not knowing the long term consequences of the Illinois budget has put our state $100 billion in the hole," said Sheila Weinberg, Founder and CEO of the Institute for Truth in Accounting, which assisted in the drafting of the bill. "We can't determine the best plan to get us out until we are honest about how big the hole is."
The Long-Term Accounting Act lays out guidelines to strengthen the state's special responsibility to disclose its actions and results of those actions in a timely and useful way. The Act would require the Commission on Governmental Forecasting and Accountability, that calculates the state budget, to work with Comptroller Judy Baar Topinka's office to produce consolidated budget documents, including a balance sheet and income statement. This would facilitate the public's understanding of Illinois' financial shortfalls and the financial consequences of budget decisisons. The Act would also require specific disclosure of all state obligations which include debt to fund operations, including deferred compensation such as employees' and teachers' retirement benefits costs.
Rep. Tryon reiterated his support for this legislation. "I look forward to once again working with Truth in Accounting this year in an effort pass budget reform legislation, as there seems to be movement in support of this issue," he stated.
Moody's State Debt Analysis Now Includes Pension Obligations:
Moody's Investors Service has recently begun presenting the total debt load of the states as a combination of bond debt and unfunded pension obligations. The ratings firm said including pension liabilities as part of a state's total debt load is more in line with how corporations measure their liabilities.
Moody's acknowledges there are key differences among the various liabilities. Skipping a bond payment constitutes a default, which can have severe ramifications for an issuer's future borrowing prospects. Forgoing a required contribution to a pension fund does not constitute a default.
The states with some of the lowest credit ratings from Moody's—Illinois and California—rank seventh and 22nd respectively in terms of overall liabilities as a percent of GDP. Illinois has relatively little debt, but a large unfunded pension liability. Moody's reports California is the nation's largest borrower of debt in the bond market.
Introducing the Truth in Accounting Staff:
Sheila Weinberg, Founder and C.E.O. of the Institute for Truth in Accounting has put together a professional staff to assist in the Institute's mission to (in a non-partisan manner) compel government to produce financial reports that are understandable, reliable, transparent and correct.
Institute staff members include, from left: Darlene Porteus, Nancy Mathieson, Sheila Weinberg, Ralf Seiffe, Donna Rook, John Crosetto (intern) and Denise Gibson.