Connecticut Weighs Bill Giving Comptroller Power Over GAAP

As Connecticut’s legislative session winds down, the Senate holds a bill that could change accounting procedures for the state. In March, Connecticut’s Joint Appropriations Committee filed HB 7338 on behalf of Comptroller Nancy Wyman that sought to allow the comptroller to establish generally accepted accounting principles, or GAAP, for the state’s budgetary purposes, rather than those exactly prescribed by the Governmental Accounting Standards Board. Allowing the comptroller to define GAAP accounting standards would enable the state to freeze its $1 billion deficit by GAAP standards at its current level and initiate GAAP accounting in future years. While the state is expected to have at least an $840 million budget surplus for fiscal 2007, and it also has about $1.1 billion in its rainy-day fund, it still has about a $1 billion GAAP deficit that it has yet to address. Because of the expected budget surplus, “it looks like we actually have a budget surplus when we really have a deficit,” Wyman said. Connecticut “built the rainy-day fund up at a little over a billion dollars, but it’s offset almost entirely by this negative number,” Moody’s Investors Service senior analyst Nicole Johnson said. “So on a combined basis, the state looks weak, in terms of its reserves.” The bill passed unanimously in the House in late May and has now moved to the Senate. Connecticut’s legislative session ended at midnight, and some senators were hesitant to pass the bill without much time to consider its implications. As of press time, the Senate had not passed the bill.“It’s interesting, because when things pass [in the House], that’s usually a good indication of where it’s going to lead in the Senate,” Democratic majority whip and Appropriations Committee member Bob Duff said. However, “since it has passed [in the House] there has been, I would say, kind of a cry to not pass the bill, because the fact it could change the accounting standards of the state.” “What this bill will do is change the structure, where the comptroller, a politically elected official, is going to make decisions that in my opinion will include her own personal feelings in regards to GAAP principles,” deputy minority leader and ranking member of the committee, David J. Cappiello said. “I don’t think any person should be making these determinations single-handedly, because politics will come into play.” But Wyman said she plans to implement GAAP principles into Connecticut’s budget procedures, which currently aren’t used there. In 1993, Connecticut passed a law that required it to use GAAP rules issued by the GASB. Every year, the Legislature votes not to implement the GAAP rules because that would mean addressing the $1 billion deficit by paying $150 million a year for the next 14 years.While Wyman is trying to implement the GAAP rules, the GASB, a nationally recognized body responsible for establishing financial accounting and reporting standards for state and local governments, does not support her proposition. “[The GASB] is a financial reporting system of checks and balances; there is no self-interest,” GASB spokesman Gerard Carney said. “The system needs to be free of political and commercial influence.” In a letter to state legislators, Robert J. DeSantis, president of Financial Accounting Foundation, which overseas the GASB, said that certain provisions of the bill would “put the state at risk of not following GAAP and undermine the GASB, which would not be in the state’s and GASB’s best interests.” “They’re a purist, and that’s fine,” Wyman said of GASB. “Except I have to be a realist, and the only way I can get us on to the correct accounting system is by freezing this debt.” Although Wyman has every intention of following the GAAP rules, “Who’s to say the next elected official would feel the same way?” Carney said. Duff and Cappiello, who both noted they have no concerns with the current comptroller’s accounting practices, also have an uneasiness of giving this power to future comptrollers whose accounting and budget methods are not yet known. “The bond agencies are the rules for us,” Wyman said, and any future comptroller will have to adhere to what the bond agencies want. Because bond ratings agencies and the state’s auditors ask for CAFR reports, the state does and will continue to follow GASB rules for its auditing purposes, Wyman said. She said she does not want to change the rules, but rather “move towards the implementation of the GAAP.” “We are judged by our reports to the bond ratings agencies,” Wyman said. “If the next comptroller wants to come in and fool around, bond ratings are going to go down and the interest of the bonds will go up, so they will not fool around with it.” Wyman said Connecticut appears to have two different books, one for budgeting purposes, and the other for addressing GAAP rules. “We’re trying to move to one set of books, which is GAAP,” Wyman said.