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Page 1: Www.CTCPAs.org 1. 2 3 RUNNING THE NUMBERS…… 4  Connecticut’s Crisis 5

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RUNNING THE NUMBERS……

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Connecticut’s Crisis

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GASB – policy setting org that sets GAAP for state & local govt

June 2012 – GASB imposed reforms to take effect no later than FYB after 6-15-14. (GASB #68).

Require all pension and OPEBs to be reported fully on F/S.

Estimated T’s of unreported liabilities.

How will States handle this?

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Moody’s

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Accounting Principles

Core – Matching Concept

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C = comprehensive A = annualF = financialR = reports

Where is the data?CAFR’s

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Full Accrual=Long-Term Health

Modified Accrual=Short-Term Health

Budget Basis can be anything!“Modified Cash” for the State

Either of the above are GAAP

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Budget Reporting Basis – not GAAP

(reporting revenue as fast as possible reporting expense as slow as possible)

• Revenue – as earned and available• Expense – as paid• Debt - income

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State of CT - Balance SheetModified Accrual Total

June 30, 2012 (expressed in thousands) Governmental

Funds

Assets

Cash and Cash Equivalents 412,647

Investments and Securities 129,385

Receivables: 3,880,909

Other short-term assets 747,668

Total Assets 5,170,609

Liabilities and Fund Balances

Liabilities

Accounts Payable and Accrued Liabilities 505,556

Other short-term liabilities 2,974,164

Total Liabilities 3,479,720

Fund Balances

Nonspendable: 171,576

Restricted 2,454,652

Committed For:

Other 99,931

"Rainy Day Fund" 93,454

Assigned 22,770

Unassigned -1,151,494

Total Fund Balances 1,690,889

Total Liabilities and Fund Balances 5,170,609

Summarized for discussion purposes from the YE June 30, 2012 Consolidated Annual Financial Report (CAFR)

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State of CT – Balance SheetFull Accrual – Almost…….Sort of…….

June 30, 2012 (expressed in thousands)Governmental Activities

Assets As ReportedCurrent Assets 2,774,150Noncurrent Assets 1,170,411Capital Assets 10,965,884Total Assets 14,910,445

LiabilitiesCurrent Liabilities 3,498,709Noncurrent Liabilities

Bonds 16,559,594Long-term Notes 573,365Net Pension Obligation 2,496,190 *

Net Other Post Employment Obligation (OPEB) 5,755,731 *Compensated Absences 503,954Workers' Compensation 456,702Capital Leases 36,162Claims and Judgements 35,241Other 25,661

Total Liabilities 29,941,309

Deficit 15,030,864Summarized for discussion purposes from the YE June 30, 2012 Consolidated Annual Financial Report (CAFR) Pages 29 and footnote 17

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www.CTCPAs.orgPension & 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

• 83% of this debt - NOT on the books

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State of Connecticut Balance Sheet – Long-termState of Connecticut Balance Sheet - Including Long-term DebtsJune 30, 2012 (expressed in thousands)

Governmental Unrecorded Debt Governmental Assets Activities as Reported Activities in Total

Current Assets 2,774,150 2,774,150Noncurrent Assets 1,170,411 1,170,411Capital Assets 10,965,884 10,965,884

Total Assets 14,910,445 14,910,445

Liabilities and Fund BalancesCurrent Liabilities 3,498,709 3,498,709Noncurrent Liabilities

Bonds 16,559,594 16,559,594Long-term Notes 573,365 573,365Net Pension Obligation 2,496,190 22,049,821 24,546,011

Net Other Post Employment Obligation (OPEB) 5,755,731 15,197,203 20,952,934

Compensated Absences 503,954 503,954Workers' Compensation 456,702 456,702Capital Leases 36,162 36,162Claims and Judgements 35,241 35,241Other 25,661 25,661 Total Liabilities 29,941,309 37,247,024 67,188,333

Summarized for discussion purposes from page 29 of the YE 6/30/2012 Consolidated Annual Financial Report (CAFR), Page 29 and* June 30, 2012 Actuarial reports** June 30, 2011 Actuarial report - most recent

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State of Connecticut Balance Sheet – Long-term – Continued

State of Connecticut Balance Sheet - Including Long-term Debts

June 30, 2012 (expressed in thousands)

Governmental Unrecorded Debt Governmental

Activities as Reported Activities in Total

Assets

Total Assets - From previous slide 14,910,445 14,910,445

Liabilities and Net Assets (Equity)

Total Liabilities - From previous slide 29,941,309 37,247,024 67,188,333

Net Assets

Invested in Capital Assets , net of related debt 5,305,440 5,305,440

Restricted, but expendable 1,429,076 1,429,076

Restricted, not expendable (endowed) 212,897 212,897

Unrestricted ($21,978,277) ($37,247,024) ($59,225,301)

Total Net Assets ($15,030,864) ($52,277,888)

Summarized for discussion purposes from page 29 of the YE 6/30/2012 Consolidated Annual Financial Report (CAFR), Page 29

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Avail Assets As Reported

Assets 3 15

Liab 67 67

Avail -64 -52

Per taxpayer ~50,000

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Lessons from Detroit…..Detroit CT

Debt 3,990 21,690

Off B/S Debt

Pensions 643-3.5B* 24,546

OPEBs 5,727 20,953

Total Debt 10,360 67,189

Avail Assets 1,830 3,000

Debt to Asset Ratio

5.66 22.4

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Lessons from Detroit…..

At .16 $30,000 pension$ 4,800

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• Large income disparity within state• Revenue has not grown as fast as commitments• Beg 1990’s state employee benefits increased

significantly, with little contribution to funding• Unfunded pensions – close only to MA• OPEBs – highest in country • CT & RI only 2 states with no county gov’t

– Inefficiencies in running 169 towns, 195 school districts

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• CT problems – exacerbated by reliance of fed funding (37% of our revenue)

• 32% economy on FIRE (nat’l average is 21%)• Worst state for job creation since 1990• Less people employed than in 1990• Not recovering as quickly as expected/hoped• 5,000 fewer small business than in previous

decade

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• Co’s downsizing CT presence/leaving • Loosing highly educated workforce• Major investments in higher education –

students move to other states • Tax incentives do not constitute an economic

development strategy• Our reputation is unfriendly to business

– High taxes, over regulated

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• Healthcare costs rising• Population – shrinking

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www.CTCPAs.org 1 Time Fixes to Balance Budget• 2009:

– $916 Million in Borrowing due 2012 to 2016– $400 Million in Federal Stimulus Temporary Funding

• 2010:– $1.3 Billion in “Rainy Day Funds”– $844 Million in Federal Stimulus Temporary Funding– $164 Million in Delayed Pension Payments

• 2011:– $103 Million in “Rainy Day Funds”– $745 Million in Federal Stimulus Temporary Funding– $100 Million in Delayed Pension Payments– $647 Million in Borrowing paid with utility surcharges– $449 Million in “Carry forwards”

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Connecticut’s 2014 – 2015 Biannual Budget Balanced By:

• $220 Million in Extended Taxes.• $28 Million Projected From a Tax Amnesty Program .• A 4-Cents-per-Gallon Gasoline Tax Increase.• Shifting $6 Billion of Medicaid Spending Off Budget.• 2009 Bond Issue Repayment Delayed Saving $392 Million over FY14 and FY15. Additional Interest Expense for Delay - $45 Million• $25 Million from the Banking Fund• $12 Million from the Tobacco and Health Trust Fund.• $35.4 Million From Energy Efficiency Programs.• $35 Million From CRRA.• $1 Million From the Probate Court System.

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What lies ahead?

$1B deficit awaits the “winner” 2015-2016

tax increases?tuition increases?

drastic cuts in spending?more borrowing?

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As services are cut………. As taxes increase……….

What happens to our population?

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$875 M $560 M *

$314 M refi

*GAAP Conversion Bondsreally?

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A small sampling of idea’s from the CPAs….

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What do we do now? • Address the problem – report truthfully &

completely• Improve economic growth

– Improve infrastructure (roads, bridges, mass transit)

– Update, coordinate, rationalize regulations– Tax code reforms to encourage small business and

private sector growth– Strengthen education-workforce pipeline

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• Enhance CT competitiveness• Create transparency, accountability,

efficiency and transformation at all levels of gov’t

• Insist on 5 and 10 yr strategic plans • Promote dialog for non-partisan

solutions

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Anyone have any idea’s they’d like to share??????

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We’ve never been here beforeThe solutions are not easy

Recovery will be slow, incremental

IT CAN BE DONE!IT MUST BE DONE!

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www.CTCPAs.orgResources

• CT State Financial Statements (CAFR’s)www.osc.ct.gov/2012cafr/CAFR12.pdf

• Connecticut at Risk/Comeback America Initiativewww.keepingamericagreat.org

• Data Lab www.statedatalab.org

• Institute for Truth in Accounting www.truthinaccounting.org

• Forbes Magazine, Aug 2013, Jim Powell

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Thank you!

Camille Murphy, CPA

203-208-0572

[email protected]