Is proposed $238 million accounting change a budget deal breakthrough?

March 22, 2012

As we enter day 11 of the budget balancing special session a new proposal to end the logjam has emerged. According to the Tacoma News Tribune:

An accounting maneuver being considered at the state Capitol might allow Democrats and Republicans to cast aside the biggest point of contention in their ongoing budget negotiations . . .

The proposal would keep the money in the general fund until the end of the month, transferring it into the other account just before it needs to be sent out to local governments. That would provide about $238 million more cash on the state’s balance sheet at the end of the month.

[Wolfgang Opitz, assistant state treasurer] said the improved cash flow could be used to increase the amount the state assumes is available to spend in a given budget period. The state normally counts only the revenue it collects during that two-year period – not what is owed in that period and expected to be collected later – but Opitz said it could afford to be a little less 'ultra-conservative' if there is extra cash in the account and still have plenty of cushion.

In response to my inquiry the State Treasurer's Office provided this statement:

This proposal - if adopted by the Legislature - is yet another way for the state to modernize and improve the way we handle cash. A permanent change to this process will help the state better manage its liquidity. Further improving Washington state's cash management practices will help lower costs by more crisply managing the state's cash in the future. My first priority is to protect taxpayer money by keeping borrowing costs as low as possible and we think this action will have little or no impact on the state's credit rating.

According to a handout provided by the State Treasurer (emphasis added):

There is no change made to the timing or manner of the distributions to local governments. There is no change to the distribution formula. The only change to distribution amounts would be forgone interest.

This would not change the overall resources available within the concentration account (used by the Treasurer for cash management purposes). This change would not impact the calculation of the state debt limit, state expenditure limit, forecasted revenues or budget stabilization account transfers. There would also be no change to the information currently gathered and reported either by DOR or by the Economic & Revenue Forecast Council.

If these administrative changes are made, the general fund cash book balance (at the end of each month and biennium) would be improved. For the 2011-13 Biennium, this is expected to result in a $238 million adjustment by increasing resources on the budget balance sheet.

The item would be categorized for GAAP purposes and on the budget balance sheet as an adjustment to the working capital reserve. (Since the general fund cash balance is improved, the amount set aside for a working capital reserve could be reduced by the same amount). These monies would not be categorized as general fund revenues, rather as 'due to' another fund or account.

While this proposed accounting change may make sense from a cash management stand point it is hard to see how it helps with the current budget debate. As noted by the State Treasurer this money would not count as part of the revenue forecast for state spending but instead be marked as revenue "due to another fund or account."

So while this may make it look like there is more money available to be spent it is in fact local government revenue, not state, and is sitting on the state's balance sheet only until it is dispersed to local governments. This would indicate these local government sales tax funds would not count as a true state ending fund balance or reserve to help cushion state spending.

For it to be a true ending fund balance the state would have to be able to draw down its reserves below the $238 million mark.

Bottom line, this new proposal is worth pursuing from a cash management standpoint but it is difficult to see how it resolves the current budget impasse. The charge for lawmakers has not changed: Adopt a balanced budget within the revenue forecast that is sustainable and gimmick free.