When budgets get rough, states get gimmicky

[July 30, 2009]  OLYMPIA, Wash. (AP) -- Here's one creative way that state lawmakers helped balance Washington's troubled budget: They assumed public employees will stay on the job longer -- and die sooner than expected once they finally retire.

That bit of fancy footwork, which saved the state about $45 million, is just one entry on a long list of financial gimmicks that legislators nationwide have cooked up to patch holes in their states' budgets.

It's a roster of shell games that might land the average taxpayer on a collection agency's speed-dial list. But when times are tough, public officials aren't shy about juggling the books to make a short-term budget problem disappear.

"It's often a pretty impressive set of magic tricks," said Richard Briffault, a Columbia University law professor who specializes in state and local governments.

There are other prime examples:

• California's just-approved budget accelerates income tax withholding by 10 percent to inflate revenues during the fiscal year. The state also will save about $1.2 billion by cutting state worker paychecks one day later than usual, shifting the payroll costs into the following fiscal year.

• Alabama balanced its education budget by simply erasing the cost of classroom supplies for schools. That meant the education blueprint was technically balanced, but city and county school officials were left to pick up the tab for supplies while they're also being squeezed by dried-up tax receipts.

• With Wyoming facing about $165 million in investment losses, Treasurer Joe Meyer changed the state's accounting rules, whisking the red ink into a multibillion-dollar permanent savings account to make the state's earnings look larger.

• In Illinois, legislators are leaving a record $3.2 billion of the state's bills unpaid for the current fiscal year, making vendors wait longer for their money. Minnesota likewise has stalled $1.8 billion in aid payments to schools, and Colorado lawmakers are delaying $88 million intended for Medicaid and children's health insurance providers.

• Illinois also gave Gov. Pat Quinn authority to cut up to $2.1 billion however he sees fit, booking a boatload of savings without really knowing how it'll happen. The same happened in Rhode Island, where lawmakers told Gov. Don Carcieri to cut about $63 million in operating expenses without explaining how.

• Washington booked some pension savings by recognizing that workers have been staying in their careers longer. But the Legislature also ignored new data that accounts for longer life spans in the future, delaying that reality until 2011.

• Kansas refinanced some of its bonds, avoiding both principal and interest payments on some debts and paying only interest on others during the 2010 fiscal year. The temporary savings amount to about $39 million.

• Several states also found quick cash by raiding off-budget accounts dedicated to specific functions. New Hampshire, for example, is being sued over its decision to grab $110 million from a malpractice insurance fund.

The states are under pressure because unlike the federal government, many of them have laws that forbid an operating deficit.

Relying on accounting gimmicks, however, is risky. Policy-makers are betting that an economic downturn will end relatively soon, restoring enough tax revenue to make up for the stopgap money. If the economy doesn't improve, the costs can multiply -- and the underlying budget problem still hasn't been solved.

"The common theme is, people do these things to avoid the hard decisions," said Larry Gerston, a San Jose State University political science professor.

Of course, the phenomenon isn't limited to government. Businesses pull their own accounting maneuvers, said Michael Granof, an accounting professor at the University of Texas at Austin.

Pensions are a clear example, he said, of both government and business avoiding real costs over the years by continually pushing their obligations into the future.

"Why did, say, auto industry executives agree to generous pension plans? Because by and large, they didn't affect the bottom line today -- today being 30 years ago," Granof said. "But now, the bill has come due."

States haven't punted all of their tough decisions. From coast to coast, legislators and governors have cut deeply into public services, peeling back spending on education, health care, social services and more. Some also have turned to the public for more money through tax and fee increases.

Which points to a defense of budget gimmicks: Without some creative ways of finding one-time money, those service cuts or tax hikes could be even steeper, possibly making things even rougher for citizens.

One very common short-term fix -- sweeping up cash from secondary accounts -- is something any reasonable business or household would do if faced with a cash crunch that threatened day-to-day operations, said James Wallace, a Claremont Graduate University finance professor.

"You can point out that it's not sustainable in the long run, and that you've got to fix the problem. But these are short-term," Wallace said. "If you don't make it through the short term, there is no long term."

[Associated Press; By CURT WOODWARD]

Contributing to this report were Associated Press writers Brian Bakst in St. Paul, Minn.; John Hanna in Topeka, Kan.; Ray Henry in Providence, R.I.; Norma Love in Concord, N.H.; Ben Neary in Cheyenne, Wyo.; Phillip Rawls in Montgomery, Ala.; Colleen Slevin in Denver; and Christopher Wills in Springfield, Ill.

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