Fixing Our Future

Connecticut’s State and Local Government Crisis:Fixing Our Future : 

Connecticut’s State and Local Government Crisis:Fixing Our Future 1

Slide 2: 

2 Full Accrual=Long-Term Health Either of the above are GAAP

SHORT-TERMFINANCIAL HEALTH : 

SHORT-TERMFINANCIAL HEALTH 3

Basis of Accounting : 

Basis of Accounting Government Funds – Modified Accrual Measures flow of “current financial resources” No long-term assets are added to equity Capital Assets are expensed and not depreciated Receivables not collected in 60 days are deferred No long-term liabilities are subtracted New debt is recorded as a revenue Payments of principal and interest are expensed 4

State of CT – ST Balance Sheet : 

State of CT – ST Balance Sheet 5

Equity Compared to Others : 

Equity Compared to Others 6

How Did We Get Here? : 

How Did We Get Here? 7

Long-TermFinancial Health : 

Long-TermFinancial Health 8

Basis of Accounting : 

Basis of Accounting Government Wide – Full Accrual Measuring “Economic Resources” Full Accrual Basis of Accounting (“Normal”) Capital Assets are capitalized and depreciated All receivables are recorded Long-term debt is recorded as a liability Interest payments are expensed Principal payments reduce the liability 9

State of CT – LT Balance Sheet : 

State of CT – LT Balance Sheet 10 Summarized for discussion purposes from page 29 of 6/30/09 audited statements

Pension & OPEB Obligations : 

Pension & OPEB Obligations What is this? Benefits we owe retired employees Benefits that current employees have earned OPEB - What is included in the liability? Being “amortized” onto the books starting in 08 On these 6/30/09 statements only 2/30th included That means 28/30th are not included yet! Most of this debt is NOT on the books yet! 11

Current Year’s Shortfall : 

Current Year’s Shortfall 12 CT is #43 of 50 States

Overall Shortfall : 

Overall Shortfall 13 Source: The Pew Center on the States CT is #46 of 50 States Read the CSCPA’s Finance Director, Julie McNeil, CPA’s attached handout – Member of the Rell’s OPEB/Pension task force

Tax Supported Debt per Capita – 2008(Source CT Office of Fiscal Analysis) : 

Tax Supported Debt per Capita – 2008(Source CT Office of Fiscal Analysis) 14

State of CT – LT Balance Sheet : 

State of CT – LT Balance Sheet 15 Updated figures from Office of Fiscal Analysis - November 23, 2010 presentation

State of CT – LT Balance Sheet : 

State of CT – LT Balance Sheet 16 Summarized for discussion purposes from page 29 of 6/30/09 audited statements

Long-Term Health Over Time : 

Long-Term Health Over Time 17 -46,000,000,000 -48,000,000,000 -50,000,000,000 -52,000,000,000 -54,000,000,000 -56,000,000,000 -58,000,000,000 -60,000,000,000 -62,000,000,000 -64,000,000,000

Budget basis : 

Budget basis 18

Basis of Accounting : 

Basis of Accounting Budget Basis – Modified Cash Expenditures are on a Cash Basis If we don’t write the check, it does not get counted Note: Debt payments expensed Note: New capital assets are expensed Revenue is recorded when it is earned: Most tax revenue is recognized on an accrual basis Note: New debt is considered income Unspent Funds “carried” from year to year 19

Spending Cap : 

Spending Cap Basic Rule: Budgeted Expenditures Must Equal Est. Revenues Expenditure Limitations: % increase capped at higher of: Annual growth in personal income Annual inflation Excludes: Debt Service, Certain Grants, Mandates Any Surplus must: Reduce Debt or Increase the Rainy Day Fund Exception by Gov. and 3/5ths Gen’l Assembly (This has normally occurred in surplus years) 20

Where have all the Surpluses Gone? : 

Where have all the Surpluses Gone? 21 Source: Connecticut’s Office of Fiscal Analysis

One Time Fixes to Balance Budget : 

One Time Fixes to Balance Budget 2009: $916 Million in Borrowing due 2012 to 2016 $400 Million in Federal Stimulus 1-Time Income 2010: $1.3 Billion in “Rainy Day Fund” $1 Billion in Federal Stimulus 1-Time Income $100 Million in Delayed Pension Payments 2011: More Borrowing paid with utility surcharge 22

What is Projected for the Future? : 

What is Projected for the Future? 23

What is Projected for the Future? : 

What is Projected for the Future? 24

Our Recommendations for the State : 

Our Recommendations for the State Use of Generally Accepted Accounting Principles as per the Governmental Accounting Standards Board (GAAP per GASB) GAAP Based Budgeting Full Accrual Basis (Not Modified Accrual) Phase in Balancing Requirement (vs Phase in GAAP) Compromise – include a schedule showing how far off we are from balancing Full actuarial reports for Pensions and OPEB required No scope limitations to audit report allowed 25

Basis of Accounting : 

Basis of Accounting 26

Our Recommendations for the State : 

Our Recommendations for the State Real “Rainy Day Funds” Set a 10% to 15% threshold No offsetting negatives! Excess committed to pensions/OPEB Obligation Strategic Planning including: Long-term budgeting (5 to 10 years out) Manage the Balance Sheet It can no longer be business as usual 27

Effects on the Cities and Towns : 

Effects on the Cities and Towns 28

State Support Example : 

State Support Example 29

Slide 30: 

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Let’s tell our legislators : 

Let’s tell our legislators We must FIX OUR FUTURE now! 31