Did you know there are two sets of accounting rules? One for governments and one for the rest of us?
That hardly seems fair.
Elected officials in New Hampshire and elsewhere have been able to claim balanced budgets while racking up billions in debt.
Bad accounting supports bad budgeting practices, and this is harming our representative form of government. Voters do not have the information needed to be knowledgeable participants in their state government. Candidates are being supported based upon the wrong information.
How would voter sentiment change if they knew that:
—Governors and legislators are not truly balancing the state’s budget?
—Claims of balanced budgets are based upon bills not being paid?
—Billions of dollars of costs are being hidden?
—Borrowed money is being included as revenue?
—Taxes would need to be increased to cover the true costs of state government?
—Promised benefits will need to be cut or eliminated?
This election cycle voters are being enticed with talk of budget surpluses, tax cuts and additional services and benefits. In New Hampshire, unfortunately, the way the state prepares its financial statements supports the false claims of balanced budgets and surpluses.
The reality is that the Granite State is more than $2.6 billion in debt despite claims of a balanced budget. New Hampshire voters will once again go to the polls without knowing the true state of the government’s finances.
The state’s financial problems stem mostly from unfunded retirement obligations. Over the years, the state has set aside only 59 cents for every dollar of promised pension benefits and has set aside no money for promised retiree healthcare benefits.
This brings us back to the accounting double standard. Here’s the truth:
Corporations must use the accounting standards set by the Financial Accounting Standards Board. These rules require the use of “full accrual accounting” in their financial reports listing all earned revenue and incurred expenses of every subsidiary and parent company.
State and local governments like New Hampshire, on the other hand, use a different set of rules established by the Governmental Accounting Standards Board (GASB).
The GASB standard requires governments to keep two sets of books. The first set of books is for the governmental funds statements, which accounts for the general and other budgeted funds using a convoluted system called “modified accrual accounting.” Under these accounting rules, governments do not have to list their long-term pension or healthcare retirement obligations on this set of books.
The reason for this intentional oversight is that elected officials want to hide the fact that they are incurring debt, so costs are passed onto future taxpayers, not current voters.
(Side note: The GASB board is theoretically independent but four of its seven members are former or current government financial insiders. Two of the other members worked for accounting firms where their major clients were governmental entities.)
The second set of books is government-wide, consolidated financial statements prepared using a method similar to the corporate full accrual method. However, because the numbers in this second set of books do not make the elected officials look good, these statements usually are not mentioned when elected officials talk about the state’s finances.
If New Hampshire state government had to use the same accounting rules as the rest of us, the state’s general and other budgeted funds financial statements would report the truth. Unfortunately, GASB is considering fortifying its rules that require state and local governments to keep two sets of books, prolonging this charade.
We need to fight this nonsense, because it makes it impossible for taxpayers to hold elected officials accountable for the huge debt they create.
Voters beware, nobody wants a scenario where benefits are eliminated or taxes are increased to pay for the debt.
For more information, please visit TruthInAccounting.org.