When Rell vetoed the GAAP bill, she was essentially prolonging the long history of Connecticut government to ignore fiscal reality and continue talking about the mythical surplus. It seems unlikely that the legislature under the Democratic majority will override the veto. Brian Lockhart’s article digs through the issue:

Republican Gov. M. Jodi Rell and the General Assembly’s Democratic majority abandoned proposed income tax increases this legislative session after learning the state’s surplus had reached $1 billion.

But it turns out the state is simultaneously $1 billion in the red.

Connecticut keeps two sets of books - one for budgeting purposes and the other for accounting purposes.

The former practice, called “modified cash budgeting” allows the state to count revenues before they have been realized and delay expenses, resulting in the $1 billion budget surplus touted by Rell and lawmakers from both parties.

“It makes our books look like they’re in better shape than they are,” said state Comptroller Nancy Wyman, a Democrat. “(It’s) a very liberal, loosey-goosey kind of accounting.”

But generally accepted accounting practices, known by numbers-crunchers as GAAP, do not allow any gimmicks. Cash is recorded when it comes in and when it is paid out.

The state has a GAAP-calculated, long-term deficit of $1 billion which is reported to bond rating agencies, Wyman said. That deficit lowers Connecticut’s bond rating and results in the state paying higher interest rates, which affects taxpayers.

“Quite frankly, if this were a corporation taking this kind of latitude, they would put the management in jail,” said state Rep. John Stripp, R-Weston, a bank executive. “It’s been going on for decades and decades (under) Republican and Democratic administrations.

“Everybody thinks we should change it but they look at the pain involved and everybody starts to shirk. . . . It creates a deficit you have to make up either by collecting more taxes or significantly cutting spending, both of which are painful to most people in the legislature.”

In the early 1990s, as a trade-off for instituting the state income tax, lawmakers required the state to adopt the GAAP budgeting.

“From then on, the legislature and the governor delayed implementation,” Wyman said.

That tradition continued a week ago, when Rell vetoed a bill, touted by Wyman and backed by the House of Representatives and Senate, that would have the state phase in GAAP for budgeting purposes.

What comes next is the really sad part. Wyman’s bill included a plan to cut down the deficit.

Under the legislation, Wyman also would have developed a plan for the General Assembly to gradually pay down the $1 billion deficit rather than swallow that bitter pill all at once.

“If they wanted to go into complete GAAP accounting immediately, they’d have to be paying out $100 million every year for the next 10 years to get rid of that deficit,” Wyman said.

But with legislators wanting to instead deliver on promised investments in health care and education, Wyman said she offered a system that would have required smaller annual payments of about $50 million.

But, according to Lockhart, a single letter managed to derail prudent fiscal policy.

A key factor in Rell’s veto appears to have been a June 15 letter from Robert Desantis. Desantis is the president and chief operating officer of the Financial Accounting Foundation, a Norwalk-based entity which oversees the Governmental Accounting Standards Board, also in Norwalk.

The independent GASB is the group state and local governments nationwide turn to for establishing their fiscal guidelines. It supports GAAP budgeting.

But Desantis’ letter states he fears the wording of Wyman’s legislation would give the state comptroller, not GASB, the ability to set his or her own standards apart from GAAP.

“This portion (of Wyman’s bill) threatens the integrity and objectivity of the independent standard-setting process and is a step backward for public trust, government accountability and financial transparency and the state’s investors,” wrote Desantis, who could not be reached for comment.

Rell, in a statement released about her veto, echoed Desantis’ concerns.

Wyman accused Rell of being swayed by “misinformation, pressure and confusion” but the governor was not the bill’s only opponent.

Although the GAAP legislation was passed unanimously by the House of Representatives, 14 senators opposed it, including Bob Duff, D-Norwalk; Judith Freedman, R-Westport; Andrew McDonald, D-Stamford; Senate Minority Leader John McKinney, R-Fairfield; and William Nickerson, R-Greenwich.

“This bill said all the other states will publish reports written by rules of the Financial Accounting Foundation located in Norwalk except for Connecticut, which will publish its own rules as we go along,” said Nickerson, ranking Republican on the legislature’s Finance Committee. “It was a nutty idea.”

Duff said Desantis’ points “were well thought out.” He said he was not concerned about Wyman, but about how future comptrollers’ might interpret the legislation.

Stripp said he had similar concerns, but ultimately voted with his House colleagues for the bill.

“Knowing Nancy for a long time, I was willing to take a chance because it would start to move us in a direction I think we should have moved a long time ago,” Stripp said.

Robert Kurtter, managing director in public finance at New York City-based Moody’s, one of the state’s bond rating agencies, said there was a lot of concern within the industry about Wyman’s proposal.

“As we read about it, it was just confusing to us,” he said.

But ultimately, Kurtter said, after learning of Desantis’ concerns and speaking to Wyman, Moody’s was comfortable with the bill.

Kurtter noted there is nothing requiring Connecticut to use GAAP budgeting, and many governmental entities do not.

“The state has a fairly large, GAAP-reported deficit. And the state has not made progress in paying that off,” Kurtter said. “It is a factor in the bond rating.”

The legislature is in special session and has an opportunity to override Rell’s veto. It does not appear the GAAP bill is considered important enough.

“I think it’s important but not necessarily urgent,” said Senate Majority Leader Martin Looney, D-New Haven.

Wyman said as long as she remains comptroller she will continuing pushing for GAAP budgeting.

“It’s honest budgeting,” she said. “This is the public’s checkbooks. And it should be used the say way we’d be doing with our own checkbooks, with checks and balances. Why should the state be any different than the average taxpayer?”

And so, the defeicit is still there, the legislature still spends like it isn’t. Some session, eh?

source: Advocate, Leaders offer an accounting of failed measure, By Brian Lockhart, July 14, 2007