State Deficit Spending Kept Off the Books

Yet a Balanced Budget Is Required By the State Constitution

BY MICHAEL NOYES

Montana is engaged in deficit spending if pension costs and other post-employment benefits for state workers are factored in. That’s according to a study published in 2009 by the Institute for Truth in Accounting, titled The Truth About Balanced Budgets–A Fifty State Study.

That study claims Montana spent roughly $1,000 in deficit spending for every resident from fiscal year 2005 to 2007 when pension costs and other benefits are factor-ed in.
“Since then economic conditions have declin-ed,” said Ralf Seiffe, a panelist for the Institute. “It is probably worse.”
In December, Legis-lative Fiscal Analyst Terry Johnson issued a report that says total general fund revenues from July through November are down nearly 24 percent.

Legislators have also been informed that unfunded liabilities in the public employees’ and teachers’ retirement systems amounted to more than $2 billion combined as of June 30, according to a document provided by a state fiscal analyst last year to the legisla-tive finance committee.
State Senator Dave Lewis (R-Helena), a member of the commit-tee, said he believes there will need to be a reduction in benefits even for current retirees.
“We can’t go back to the taxpayers and get that money…” Lewis said.

State Senator Carol Williams (D – Missoula) disagreed.
“I don’t think you can ever go back on an agreement you made,” with current retirees, she said.

Williams said she does think changes may have to be made to the retirement system for future employees.

The Institute is urging states to use an accrual accounting system in which “revenues are recognized when earned and costs are recog-nized when incurred rather than when they are paid.”

Like other states, Montana currently uses the General Accepted Accounting Principles (GAAP) method.

The Institute’s report says the GAAP accounting procedures were sound in earlier decades when governments primarily budgeted for capital projects like roads and bridges. Seiffe said in the ‘70s and ‘80s government expenses started to shift from infrastructure to heavier spending on entitlements.

 “The problem with that is, entitlements never stop,” as opposed to building projects which have a defined time for completion, he said.

With the increasing costs of entitlement spending, “The GAAP Basis balance is not an accurate representa-tion the State’s finan-cial condition, because significant liabilities are not included,” according to the Institute’s report.

Johnson disagreed that new accounting measures should be adopted. He said future liabilities, like pension costs are “definitely an issue of concern…but should it be factored into our balance sheet? I don’t think so.”

Johnson said if those future costs were included he would argue that assets such as the permanent Coal Tax Trust Account and similar funds should also be included in the budget. Currently only the interest that is spent from those accounts is shown as income.

Lewis said he thinks including accrued costs in the budget is a worthwhile goal. However, he said that changing the accounting process at this point would result in a situation where the legislature couldn’t meet their constitutional obligation to balance the budget.

“It’s virtually impossible because it’s so huge,” Lewis said of the shortfall between revenues and coming expenses, “but it is a good goal.”

Lewis said even using current accounting practices the state could run a deficit on the operating side as early as 2010.
“We all know we’re heading for a budget deficit,” he said.
The Institute for Truth in Accounting is an unaffiliated, nonprofit organization headquartered in Illinois. It was created in 2002 to ensure that public and private organ-izations provide truthful financial information.

Mike Noyes is an investigative reporter with the Bozeman-based Montana Policy Institute.

 

 

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