California will be the last state to produce a 2019 CAFR
California has the distinction this year of being the state with the tardiest audited financial statements.
In fact, California is the only state that hasn’t completed its CAFR for fiscal year 2019.
A spokeswoman for California State Controller Betty Yee’s office said the release is now expected in October. The controller’s office has sent the completed CAFR to California State Auditor Elaine Howle’s office, and is awaiting Howle’s opinion letter. Once the auditor signs off, the CAFR can be published, said Jennifer Hanson, the controller’s press secretary.
Like last year, when California released its CAFR several months late, Yee’s office has said the delay resulted from some department’s difficulties in transitioning to FI$CAL, the state’s new electronic accounting system.
“The State of California is in the latter stages of a system-wide overhaul of its procurement, treasury, budget, and accounting systems,” Hanson wrote in an emailed response. “Some departments have struggled with the transition to new technology, leading to late submissions. SCO’s preparation of the CAFR could not begin before all submissions were received.”
The state's internal goal is to release the CAFR by the end of March. The last CAFR appeared in June 2019.
The California Treasurer’s Office posted a filing on EMMA on March 27 that the CAFR wasn’t expected to be released until June.
When California priced $2.6 billion of general obligation bonds Sept. 2, the offering document said the CAFR was expected in late September.
The preliminary official statements for a $97 million veteran's GO deal that priced Tuesday and an $87 million State Public Works Board deal coming Wednesday say the CAFR is expected by the end of October.
The treasurer’s office hasn’t fielded any questions from investors related to the delay as it has priced bonds this year, said Mark DeSio, communication director.
A call to State Auditor Elaine Howle’s office to inquire about the opinion letter was not returned. In 2019, the auditor's office issued a report noting what it described as three material deficiencies in internal control over financial reporting and another it called significant.
Truth in Accounting, a non-profit that advocates for more robust financial disclosure from states, dings the states that produce late CAFRs in its annual rankings.
Truth in Accounting CEO Sheila Weinberg ticked off the reasons she believes timely CAFRs are important. Timely audited financial statements are an important part of robust disclosure, she said, which can help voters make wise decisions about who and what to vote for.
TIA believes it is important for states to get the CAFRs done before they are making budget decisions, Weinberg said.
“It’s like figuring out your budget without having your credit card balance,” she said.
California will receive TIA’s tortoise award this year, for being the last to produce a CAFR, she said.
Ratings analysts told the Bond Buyer when interviewed about last year’s tardy CAFR that they didn’t consider the late audited financial statements a significant problem, because the state puts out so many reports on a regular basis that give them a better picture of the state’s current status. The CAFR tends to be information that is months old by the time it’s released, even in a timely manner.
“Specific to California, I don’t think it’s a big concern,” said Joseph Krist, publisher of the Muni Credit News and a longtime muni credit analyst. “In general, I have commented that investors are going to have to give issuers slack this year, particularly the smaller issuers."
Krist said he has been expecting that financial statements may not be available until after traditional deadlines. Part of the reason for that is because the federal government moved the income tax filing deadline from its traditional April 15 date into July, but also the states and local governments may be waiting on information from other government sources, he said.
“In California, there are enough ways to know what is going on regularly,” Krist said. “They put out monthly revenue and expense reports, and cash reports — and those still seem to be coming out regularly, and on schedule. I think people can get a pretty good handle on what is going on currently in California though that might not be the case for other states or issuers.”
In most cases, the delays aren’t related to anyone wanting to conceal anything, Krist said.
“I think they would be happy to get the data out,” Krist said. “I am not surprised that audits would be late. Until I see something different, I don’t think it’s malicious.”
He added that the rating agencies make a good point regarding how useful the CAFR is.
“They don’t have to come out with audited financial documents until 270 days after the close,” Krist said.
Weinberg believes having the information from the CAFR in a timely fashion is even more important now, because Congress could look to each state’s CAFR to determine how much aid the states might need and better determine how much they need to allocate overall.
“If we need a bailout, rather than throwing out round numbers, they could use the audited financial statements,” Weinberg said. “It would help Congress to look at how much they were spending then, how much they were earning then and how much they are collecting now.”
Congress could then do a bailout “based on those actual numbers of what they are losing, not based on some sloppy guess” as to how much revenues have decreased, she said.
It doesn't help TIA’s view of California that it will produce the financial report behind Illinois and other states that have made a habit of not producing audited financial statements in a timely fashion.
This year's California CAFR is delayed more than any of the annual reports that gave Illinois a bad reputation. Illinois' worst performance was fiscal 2019, when its CAFR was released 425 days after the close of the fiscal year.
As of Thursday, 450 days have passed since the end of fiscal 2019.
Illinois released its CAFR in April.
The coronavirus pandemic, resulting economic shocks and delays to income tax filings have not resulted in an increase in the number of states or cities filing late CAFRs, Weinberg said.
“Even Chicago, which is notorious for issuing it late, was on time this year,” Weinberg said.
California has received too much credit for the $20 billion it had stocked in its rainy day funds, Weinberg said.
“If your bills far exceed that rainy day fund, then I don’t think you really have one,” Weinberg said.
In the short term the revenue numbers in the latest cash report released by California's Department of Finance paint a brighter picture.
August revenues came in $1.632 billion above the month’s forecast; and for the fiscal year to date, revenues beat projections by $4.5 billion, according to the DOF.
“We wouldn’t disagree with the assessment already offered by the LAO that higher-income taxpayers have been doing better to this point relative to those at the lower end of the income scale,” said H.D. Palmer, a spokesman in the Department of Finance. “Also, and importantly, we’d also add that much of the strength so far is related to the 2019 tax year – so not related to or affected by the COVID-19 recession.”
The DOF expects that September’s results will give the state a better sense of where everything is at, Palmer said.
The Legislative Analyst’s Office wrote in an August report that higher than expected revenues could potentially be “due to relatively stable employment among high-wage earners, and higher-than-expected sales tax collections.”