Budget bill postpones changes to accounting rules for two years

Despite Gov. Dannel P. Malloy’s campaign pledge to convert state government to a more accurate and transparent accounting system, a budget policy bill passed by the House of Representatives Tuesday delays most of the changes–including starting to pay off the $1.5 billion conversion cost–for another two years.

The measure, which was approved 91-54 and now heads to the Senate, also broadens the Executive Branch’s authority to incur expenses after the fiscal year has begun while reducing the level of detail required in the governor’s annual budget presentation.

One of several omnibus bills designed to implement the $40.11 billion biennial budget adopted in early May, the measure also changes the suspension rules tied to drunken driving, tempers an earlier change to Medicaid-funded vision benefits, and orders several other policy changes.

Perhaps the most far-reaching policy change is conversion to Generally Accepted Accounting Principles, a series of common financial guidelines established by the Government Accounting Standards Board to emphasize transparency and touted constantly by Malloy last fall.

Unlike the modified cash basis currently used, under GAAP expenses must be promptly assigned to the year in which they were incurred. Similarly, revenues are counted in most situations in the year in which they were received.

In the context of the state budget, that ends an array of accounting gimmicks that have pushed current expenses into future years and similarly used revenues received in one year to balance the books of the prior year.

According to both the comptroller’s office and the legislature’s nonpartisan Office of Fiscal Analysis, state government would need an extra $1.5 billion on hand to fully follow GAAP principles. And that GAAP differential grows each year because of inflation.

Although the bill passed Tuesday includes provisions to freeze the GAAP gap at $1.5 billion, filling the hole would not begin until the 2013-2014 fiscal year.

“We had to make considerable budget cuts, considerable concessions and raise taxes considerably,” Malloy’s budget director, Office of Policy and Management Secretary Benjamin Barnes said, referring to more than $700 million in programmatic cuts, $1.6 billion in tentative union concessions and $1.5 billion in state tax hikes built into the biennial budget.  Converting to GAAP earlier than 2013-14 “would have required a level of sacrifice that wasn’t necessary.

The bill adopted Tuesday would require $75 million from any projected surplus next fiscal year, and $50 million from any projected in 2012-13, be used to cover the inflationary growth and effectively freeze the GAAP differential at its current level. After that, the gap would be filled at the rate of $100 million a year over 15 years.

Based on a budget adjustment plan submitted by the Malloy administration last week, the next fiscal year now is designed to run nearly $112 million in the black, and the budget for 2012-13 would run up a $578 million surplus.

But Rep. Tom Reynolds, D-Ledyard, a member of the Appropriations Committee who has spearheaded development of the GAAP provisions, defended the pace of the conversion plan. “Given our history, given the scope of our accumulated deficits, I think this is a very ambitious plan to deal with GAAP,” he said.

Malloy signed an executive order regarding GAAP shortly after being sworn in on Jan. 5. But that did not direct state agencies to begin keeping their books in accordance with those principles. Rather it gave his budget agency two months to develop a long-term plan for GAAP conversion.

And the bill adopted Tuesday doesn’t require the governor’s budget agency or the comptroller’s office to report in accordance with GAAP until July 1, 2013.

Reynolds said conversion simply can’t happen as swiftly as some might have hoped.

“There are very practical reasons for why we can’t go on a more accelerated route,” he said. “There are financial managers in every state agency who have never operated under a GAAP environment. You have to train these people.”

Reynolds added that the state’s chief financial data processing system, CORE-CT, also will need to be modified to accommodate the conversion.

The bill adopted Tuesday also had minority Republicans in the Democrat-controlled House questioning another of Malloy’s campaign pledges: to make government finances more transparent and accountable.

One section of the bill eliminates a requirement that the governor’s budget presentation list all programs within each agency as well as their statutory authority, needs and performance measures; available private and federal funds to support state agency spending; and proposed state spending for all major programs within each agency.

Instead the bill allows the governor to cover these items “in summary form” in the budget presentation, provided it outlines expenditures for new and expanded programs and an explanation of any “significant program changes.”

Barnes said the administration didn’t seek any “substantive changes” to its budget reporting requirements. “We only looked at areas that created additional work without providing additional value.”

And another section would end a current requirement that agencies pay all expenses incurred in a fiscal year within 30 days of that year’s end. In other words, any bills incurred during a 12-month period ending June 30 have to be paid by July 30.

Rep. Craig A. Miner of Litchfield, ranking House Republican on the Appropriations Committee and Deputy House Minority Leader Vincent Candelora, R-Branford, argued this could lead departments running a surplus at year’s end to buy goods and services that wouldn’t be needed–or billed–for many months, rather than return those surpluses to the General Fund.

“Traditionally we’ve always kept the agencies on a pretty short leash,” Miner said. “There’s no quicker way to find out if there’s really extra cash (in an agency budget) than to force them to be responsible in how and when they spend their money.”

“We’re going to allow the comptroller to pay any bill, at any time, regardless of what it was budgeted?” Candelora said. “We’re opening up a can of worms to allow him to write checks freely.”

Barnes defended the provision, arguing that greater flexibility is needed to accommodate the conversion to GAAP budgeting.

The two Republican lawmakers offered an amendment to strip the provision, but it was rejected 91-51 in a vote along party lines.

Other provisions of the bill adopted Tuesday would:

• Reduce the period of license suspension for motorists convicted for a first or second time of driving under the influence of alcohol to 45 days. Current law calls for suspensions of one year and three years, respectively. But the bill mandates, as a condition of reinstatement, that offenders install an ignition lock in their vehicle. This prevents the vehicle from starting until the driver’s exhales into the locking device, which tests blood-alcohol content for an appropriate level.
• Temper a change to Medicaid-funded vision benefits that was included in a bill adopted last week in the House and Senate. The earlier legislation limited Medicaid coverage for eyeglasses to one pair every two years, up from one per year. The revised version would allow Medicaid to pay for a second pair of glasses within a two-year period if a person’s health care provider determines that it is necessary.
• Eliminate a requirement that the executive director of the Capital City Economic Development Authority, a quasi-public entity created in the late 1990s to oversee state-funded development projects in downtown Hartford, also be a staff member of the state Office of Policy and Management.
• Order studies into the equity of municipal grant programs and whether minority-owned businesses are discriminated against in state contract awards.
• Increase from seven to 12 the number of majors that the state police commissioner can appoint – an increase that Miner charged would be the first step toward helping workers in that classification to unionize. Rep. Toni Walker, D-New Haven, offered no explanation for the increase accept to say that it had been requested by leaders in the Senate.