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

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

2. Full Accrual=Long-Term Health Modified Accrual=Short-Term Health Either of the above are GAAP Budget Basis can be anything! “Modified Cash” for the State

3. SHORT-TERMFINANCIAL HEALTH

4. 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

5. State of CT–ST Balance Sheet

6. Equity Compared to Others Source: National Association of State Budget Officers The Fiscal Survey of the States – Spring 2013

7. Long-TermFinancial Health

8. State of CT – LT Balance Sheet Summarized for discussion purposes from page 29 of 6/30/12 audited statements

9. 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 6/30/12 statements only 5/30th included • That means 25/30th are not included yet! • Most of this debt (83%) is NOT on the books yet!

10. Percent of Pension Funded CT is #48 of 50 in Funding our Pensions Source: The Pew Center on the States – 2012 report

11. Connecticut is one of 17 states that has not funded any of its OPEB Obligations Source: The Pew Center on the States – 2012 report

12. OPEB Costs per Year CT is #43 of 50 States in Cost per Year CT is #50 of 50 States in Cost per Year/Person Source: The Pew Center on the States

13. Source: Truth in Accounting’s “The 2012 Financial State of the States”

15. State of CT–LT Balance Sheet Liabilities are FIVE times the Assets

16. Budget basis

17. 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)

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

19. Recommendations from the CPAs!

20. Basis of Accounting We Got We Wanted Not for Operating Audit Scope Limitation Fund the ARC

21. 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 Full Accrual Balance Sheet • It can no longer be business as usual

22. We must FIX OUR FUTURE now!

23. www.KeepingAmericaGreat.org Art Renner, CPA, Executive Director Connecticut Society of CPAs ArtR@CTCPAs.org Marcia Marien, CPA, Partner O’Connor Davies, LLP MMarien@ODPKF.com