TIA recently completed our analysis of the 50 states and will release the results on October 25. Some seismic shifts occurred due to Covid-relief money and last year's stock market gains. Stay tuned!
While trying to explain the overarching thesis of the analysis to a friend, it was brought to my attention that some people think the terms financial statements and budgets are interchangeable.
In her exact words, "I thought those were interchangeable accounting jargon thingies!" (no kidding)
A large part of the mission of Truth in Accounting is ensuring you are an informed voter with the complete financial picture of your government, including “accounting jargon thingies”!
Financial statements and budgets are very different documents used to track how the government spends its money. I mean our money.
I like to describe the budget as based more on feelings and some political mumble-jumble. In contrast, the financial statement is based more on facts.
The budget says, "I have $5,000 coming in monthly. Therefore, I can afford the $1200 Porsche payment a month." I like it, and I want it.
The financial statement says, "That's not so wise, Johnny. You still have student loan debt, that credit card from Christmas, your rent payment, and you haven't contributed to your savings since last July." Bummer!
The financial statements include things like 'Statement of Activities,' 'Statement of Net Position,' and 'Deferred Inflows & Outflows.' (Accounting Jargon) This report is a little more straightforward because it reports revenues and expenses for a certain period of time.
The budget, however, is a different beast with the ability to shapeshift and obfuscate the Truth. It is the financial equivalent of your checkbook plus some sleight of hand. It has no regard for your credit card balances, savings account or lack thereof. Like your checkbook, the government's budget is simply money in (tax revenue/paycheck) vs. money out (checks written/needs & wants).
Compare below the government's accounting tricks against you balancing your checking account using similar tricks.
Let me know if any of them have ever worked out for you!
-The state inflates revenue assumptions-
-You tell yourself you will get a second job or work overtime next month-
-The state can list borrowed money as income in its budget-
-You plan to take out a loan so you will have extra money to spend-
-The state delays the payment of current bills until the start of the next fiscal year-
-You "forget" to pay your electricity bill for two months-
-The state understates the actual expenses of government by leaving out long-term liabilities-
-You ignore some of your expenses because you aren’t going to use cash to pay for them. You are going to charge them to your credit card-
All these tricks allow governments to pretend their budgets are balanced, but their incurred expenses are more than their revenues. You need to look beyond the budget!
While its financial reports are a more accurate picture of a government, the clearest financial picture of the 50 states and 75 most populated cities can be found on our Data-Z website.
With elections right around the corner, you should be able to verify whether candidates claiming balanced budgets or surpluses are truthful and fully transparent.
Stay tuned next week when we talk about deferred inflows and outflows.
Another accounting trick that has us scratching our heads!
I hope I have clarified some “budgeting mumble jumble jargon” today. So, if you have a friend like mine, save them some embarrassment and forward this message.