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ECONOMIC ANALYSIS:

Thinking About Budgets—the “La-La” Land of Governmental Accounting

by Fred Cederholm
We are told future economic growth will eliminate any deficit in just 4 to 5 years. We’ve heard this every year for the past 26 budgets—it hasn’t come true.
I’ve been thinking about budgets. Actually I’ve been thinking about fiction, constitutional procedures, partisanship, and “the Lisa factor.” Fiction is the telling of a “made-up” story that is presented in the context of being something that is real, is based in fact, and is true. It is meant to stir the imagination and to provoke thought. Governmental budgets are fictions that often border on fantasy.

You see, our governments are required by their overriding constitutions to prepare an annual budget for their coming fiscal years. The rules of the game (and the whole budget process is a game) begin the process by the respective chief executive's submitting a budget proposal to the respective legislative bodies. This is nothing more that a pre-story line where the chief executive provides the plot proposal as to how the executive would “like” the coming year’s financial resources to be allocated and spent by the governmental entity under his or her “leadership.”

When it comes to our federal government, the real budget story line effectively develops in the financial committees of the House of Representatives and the Senate. These must be “reconciled” and voted upon before the mutually acceptable budget is sent to the chief executive for signing. Technically, all spending legislation “originates” in the House of Representative. This, too, is somewhat of a fiction.

As a CPA and a forensic accountant, I have spent a great deal of time on assignments and audits which focus in the “la-la” land of governmental accounting. Accounting is a science, an art, and a language which attempts to present the financial picture of an entity using numbers during a finite period of time. The goal is to make that presentation fair, consistent, comparable, and comprehensible to the user of the financial information. Every year, I devote much time to observing the budgeting process at the federal and state levels and reviewing the respective outcomes. Like reading a work of fiction, I have always been entertained by the process. I am frequently shocked, or even outraged, by the outcomes. The fiscal 2008 versions of these fictions continue to live up to (or rather down to) my expectations.

Uncle $ugar needs an approved budget by the start of the 2008 fiscal year on October 1. The President’s request for a record budget of $ 2.9 TRILLION has been blessed by Congress. There was an apparent meeting of the minds, with the federal legislators agreeing that: “Sure... we can appropriate/approve/spend $7.945 BILLION a day in fiscal 2008!” The final details of who gets how much, for what, and when they get it will be hammered out in various individual appropriation bills. Somewhere between a fifth and a third will be financed by evergreen national debt. 2008 trust fund surpluses like Social Security will be raided and spent elsewhere. We are told future economic growth will eliminate any deficit in just 4 to 5 years. We’ve heard this every year for the past 26 budgets—it hasn’t come true.

Illinois, where I live, needs its approved budget by the start of its 2008 fiscal year on July 1. Like the Feds, Illinois accounting is on a cash basis—recognizing income when received and expenses when paid. The BILLIONS of contractual obligations already owed by the state only surface if someone is crass and tacky enough to bring up the subject of accrual accounting. Illinois is something like two years behind in paying health care providers for Medicaid bills owed, and the state’s share of local education expenses has declined from a roughly 50% share to less than a 30% share. Real estate tax increases “were” to pick up the slack—but they haven’t, as roughly 7 of 10 school districts still find themselves in deficit situations.

On March 7th, the Democratic Governor of Illinois proposed “paying” for his aggressive agenda of programs by a new tax on services and the one-time selling of state assets and the rights to future state cash flows.
On March 7th, the Democratic Governor proposed “paying” for his aggressive agenda of programs by a new tax on services and the one-time selling of state assets and the rights to future state cash flows. The last of any so-called surpluses in pensions and road funds were raided last year to “balance” the 2007 budget. Even though Democrat majorities controlled the Illinois House and the Senate, no budget was passed by the midnight deadline last Thursday. Now a special legislative session (costing God only knows how much) will be called for June and the heretofore totally ignored Republican minorities will be “consulted” because a super-majority is now required for a budget, and their votes are essential.

Illinois has been highly partisan in its budget funding along both party lines, and “the metropolitan Chicago vs. balance-of-state” lines. Speaker of the House (and Democratic majority leader) Mike Madigan doesn’t want to tie the hands of future Governors by fiscal missteps in 2008. His daughter Lisa is now Illinois Attorney General, has done an excellent job as such, and will be running for Governor down the road.

The fictional plots of “Desperate Housewives” pale in comparison to the real plots of “Desperate Politicians.”

I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.


Copyright 2007 Questions, Inc. All rights reserved. Fred Cederholm is a CPA/CFE, a forensic accountant, and writer. He is a graduate of the University of Illinois (B.A., M.A. and M.A.S.). He can be reached at asklet@rochelle.net.

Copyright © 2007 The Baltimore Chronicle. All rights reserved.

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This story was published on June 4, 2007.