running the numbers……

4. running the numbers……

5. Connecticut’s Crisis

7. GASB – policy setting org that sets GAAP for state & local govtJune 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?

8. Moody’s

9. Accounting PrinciplesCore – Matching Concept

10. C = comprehensive A = annualF = financialR = reports Where is the data? CAFR’s

11. 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

12. Budget Reporting Basis – not GAAP • Revenue – as earned and available • Expense – as paid • Debt - income (reporting revenue as fast as possible reporting expense as slow as possible)

14. State of CT - Balance SheetModified Accrual

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

16. 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 • 83% of this debt - NOT on the books

17. State of Connecticut Balance Sheet – Long-term

18. State of Connecticut Balance Sheet – Long-term – Continued

20. Lessons from Detroit…..

21. Lessons from Detroit…..At .16 $30,000 pension $ 4,800

22. 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

23. 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

24. 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

25. Healthcare costs rising • Population – shrinking

26. 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”

27. 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.

28. What lies ahead? $1B deficit awaits the “winner” 2015-2016 tax increases?tuition increases?drastic cuts in spending?more borrowing?

29. As services are cut………. As taxes increase……….What happens to our population?

30. $875 M $560 M * $314 M refi*GAAP Conversion Bondsreally?

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

33. 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

34. 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

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

36. We’ve never been here before The solutions are not easy Recovery will be slow, incremental IT CAN BE DONE! IT MUST BE DONE!

37. Resources • CT State Financial Statements (CAFR’s) www.osc.ct.gov/2012cafr/CAFR12.pdf • Connecticut at Risk/Comeback America Initiative www.keepingamericagreat.org • Data Lab www.statedatalab.org • Institute for Truth in Accounting www.truthinaccounting.org • Forbes Magazine, Aug 2013, Jim Powell

38. Thank you! Camille Murphy, CPA 203-208-0572 camille@bmsctcpa.com