An Epidemic of Bad Budgeting




The past year has been a fiscal nightmare for Nashville. Covid-19 helped punch a $332 million hole in the city’s $2.46 billion budget. Tennessee state comptroller Justin Wilson warned that, without drastic action, the state might take over management of Nashville’s affairs. In response, the city council raised property taxes 34 percent, spurring a citizen revolt in the form of a ballot initiative to overturn the tax hike. Without the extra revenue, however, Mayor John Cooper’s administration said that drastic cuts would be unavoidable: “Few corners of the Metro government, including emergency services and schools, would be spared significant reductions or eliminations.”

Nashville’s budget woes predate the pandemic: the city began borrowing money to cover deficits after the Great Recession of 2008–09. City leaders, at the same time, went into heavy debt to build new government-owned attractions, offered workers health retirement benefits that they haven’t funded, and deep-sixed pension reforms that saved the state billions of dollars. In fact, back in December 2019, the state comptroller issued a similar warning to Nashville about its shaky finances.

The Music City isn’t alone. The Covid health emergency and accompanying economic downturn caused budget crises for municipalities—cities, counties, and school districts—across America. A February letter from 400 mayors to President Biden said that the pandemic-inflicted strain on municipal budgets had “resulted in budget cuts, service reductions, and job losses” throughout local government. America’s largest city, New York, grappled with a nearly $10 billion budget deficit in the spring of 2020, while Chicago struggled with a $2 billion gap. Dozens of local governments used the crisis to justify budget maneuvers that fiscal experts generally frown upon, from borrowing money to close deficits to issuing bonds to fund employee pensions.

Author(s): Steven Malanga

Publication Date: Summer 2021

Publication Site: City Journal

GASB proposals would stretch meaning of accrual accounting



Every taxpayer and beneficiary of government services and benefits should care about good government accounting. Accountants and other financial professionals should take special note because GASB is attempting to change one of the basic tenets of accounting. This is a rare opportunity to convince GASB to reverse course and move toward true accrual accounting in budgeted funds statements.

GASB currently has two exposure drafts out for public comment: Project 3-20, “Recognition of Elements of Financial Statements,” and Project 3-25, “Financial Reporting Model Improvements.” Together, these proposals assert a foundation in something called the “short term financial resources measurement focus and accrual basis of accounting.”

The proposals, most importantly, do not relate to government-wide financial statements such as the Statement of Net Position (a balance sheet) and Statement of Activities (an income statement), both of which have significantly firmed up their accrual accounting foundations in the last decade. GASB’s proposals relate instead to governmental funds statements, such as those for general funds, which are widely used for budgeting purposes.

Author(s): Bill Bergman

Publication Date: 11 February 2021

Publication Site: Accounting Today