"Do readers know there are two sets of accounting rules?
One for governments and one for the rest of us?
That hardly seems fair. We need to fight this nonsense, because it makes it impossible for Illinois taxpayers to hold elected officials accountable for the huge debt they create.
Illinois’ elected officials have been able to claim balanced budgets while racking up more than $200 billion of debt. This bad accounting that supports bad budgeting practices is harming our representative form of government. Citizens, including voters, do not have the information needed to be knowledgeable participants in their state government. Citizens support tax and spending policies and candidates based upon the wrong information.
Would voters’ candidate selections be different if they knew that governors and legislators are not truly balancing the state’s budget? If they knew that claims of balanced budgets were based upon bills not being paid, billions of dollars of costs being hidden and borrowed money being included? Or if taxes had to be increased to cover the true costs of state government?
This election cycle, voters are being enticed with talk of budget surpluses, tax cuts and additional services and benefits. In addition to billions of dollars coming into Illinois coffers from the federal government, the so-called surplus is a result of paying $3 billion to $4 billion less into the states’ pension systems than the amount the systems’ actuaries have determined is needed to properly fund the promised benefits.
Meanwhile, elected officials claim that the state budget provides full funding of the “required contribution” into the pension systems. In fact, they tout they will pay an additional $500 million into the pension systems.
When Illinois elected officials talk about the “required contribution,” they mean the statutorily required contribution established in 1994 during the Gov. Jim Edgar administration. This funding scheme is so flawed that in 2013, the Securities and Exchange Commisison charged Illinois with securities fraud for “misleading municipal bond investors about the state’s approach to funding its pension obligations.” Former SEC Administrator Peter Chan described the plan as a “balloon mortgage on steroids.” The “required contribution” being touted now is based upon this scheme.
Unfortunately, the way Illinois prepares its general and other budgeted funds’ financial statements support the false claims of balanced budgets and surpluses. While corporations use accounting standards set by the Financial Accounting Standards Board, state and local governments, like Illinois, use a different set of rules established by the Governmental Accounting Standards Board.
Under rules of the first group, corporations are required to report the financial information of their parent entities and subsidiaries using full-accrual accounting, in which earned revenues and incurred expenses are included. The government rules, on the other hand, require governments to keep two sets of books. Government-wide consolidated financial statements are prepared using a method similar to the corporate method. But the governmental funds statements that account for general and other budgeted funds use a convoluted system called “modified accrual accounting.”
Under this system, Illinois’ general-fund statements do not include accumulating pension debt, and loan proceeds are in essence treated as revenues. Bills that have been received by the state but not paid are also excluded. Illinois routinely has billions of dollars of unpaid bills, including the $3.6 billion outstanding as of March 31, and more than $150 billion of pension debt.
The result is that the state is more than $200 billion in debt despite claims of balanced budgets.
Illinois voters will once again go to the polls without knowing the true state of the government’s finances. If the state had to use the same accounting rules as the rest of us, the financial statements for its general and other budgeted funds would report the truth. Unfortunately, the governmental standards board is currently considering fortifying its rules that require Illinois and other state and local governments to keep two sets of books and prolong this charade."
Read the full article on: News Gazette