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As a rule of thumb, the available fund
balance should be 10 percent of the
government's annual expenditures (or
roughly one month's cash flow). The
state of Connecticut's available fund
balance is negative five percent of our
expenditures. In accounting, the pres-
ence of an available fund balance, or
a portion of it, is considered a "rainy
day fund."
In Connecticut, we have a deficit of
available fund balance of $922 million.
We have artificially created a rainy day
fund by dividing the deficit available
fund balance into two parts: (1) a posi-
tive $1.4 billion we call the rainy day
fund, and (2) an even bigger negative
offset of $2.3 billion. This is not a rainy
day fund!
How do we compare to other states?
An analysis, done by the National
Association of State Budget Officers,
shows 14 states with an available fund
balance of less than one percent of
expenditures. Of that, we are one of
just four states with a deficit of avail-
able fund balance.
Long-Term Financial Health
The state's long-term financial health is
measured on the "full accrual" basis of
accounting. Here, our total assets are
$16 billion. Our total reported liabilities
are $25 billion. However, our reported
liabilities do not include all our liabilities.
Some of our pension and all of our
other post-employment benefit (OPEB)
liabilities are being amortized onto the
balance sheet over 30 years as
Accounting Standards Board (GASB).
As of June 30, 2009, only 2/30 of our
OPEB liability is included in the report-
ed liabilities on the balance sheet.
If we were to report our total liabilities,
we would report $70 billion in total liabil-
ities. Our liabilities are almost 4.5 times
our assets! According to Connecticut's
Office of Fiscal Analysis, we have the
highest debt per capita of all 50 states.
When we look at debt per capita as a
percentage of personal income, we
drop to number 48, with only Hawaii
and Massachusetts being higher.
Our equity, on a full accrual basis, is
called "net assets." Our net assets,
based on the June 30, 2009 financial
statements, are a deficit of $8.8 billion.
When we pull out the net amount we
have invested into capital assets and
restricted equity, our available net
assets are reported as a deficit of $17
billion. If we were to add the amount of
pension and OPEB liability that has not
been amortized onto the balance sheet
yet, this figure becomes a deficit bal-
ance of $62 billion.
Unfortunately, most of this is not the
result of a bad economy. Our deficit
balance was billions of dollars even in
good economic times.
How Did We Get Here?
We have been budgeting on the "mod-
ified cash basis" of accounting.
Essentially, expenditures are recorded
as slowly as possible on the cash basis
and revenues are recorded as quickly
as possible on the modified accrual
basis. When we borrow money, we
treat the proceeds as revenue. This
allows us to balance the budget by tak-
ing out new debt.
We do have some constitutional safe-
guards regarding a balanced budget:
expenditure limitations and a require-
ment to use any annual surpluses to
reduce debt or increase the aforemen-
tioned rainy day fund. However, we
don't really follow these because we
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