Whom would you include on a list of Connecticut’s most famous sons and daughters?
Indeed, the self-proclaimed Land of Steady Habits has been home to a wide array of starchy and patrician characters. And whenever residents of the Nutmeg State attempt to break free of their button-down demeanors, they risk being ridiculed for their efforts. The Daily Show’s Jon Stewart, for instance, once ravaged Senator Chris Dodd for attempting to write what Stewart called a racy blog for his constituents.
Thus, it was no surprise when the state elected the slender, bespectacled, conservatively dressed lawyer Dan Malloy to serve as its next Governor. Imagine Malloy’s surprise, though, when it appeared that the state’s Certified Public Accountants (CPAs) had stormed the Capitol last week to raucously interrupt his inauguration speech!
C-Span Captures The Moment
According to the official state transcript of the Governor’s Inaugural Message to the Connecticut General Assembly, Malloy asserted that the Nutmeg State must “adopt a responsible tell-it-like-it-is approach to balancing and managing our budget, and treat it just like any company treats a budget, with Generally Accepted Accounting Principles commonly referred to as GAAP.”
However, the official transcript fails to describe what transpired immediately after Malloy delivered this line. To his astonishment, an obligatory smattering of applause suddenly erupted into a throaty standing ovation. The nonplussed Governor blurted out “Honestly, I didn’t know there were that many accountants serving in the legislature!”
This ad hoc quip fails to appear in any of the major official transcripts that purport to reprint the inaugural address, but it was clearly captured by C-Span’s video of the speech. Viewers who web surf to the 17 minute, 40 second mark of the 28 minute, 13 second video clip can witness the moment.
Most likely, of course, few or none of those state legislators in the audience were actually CPAs. But why would legislators of the Constitution State become so boisterous at the very mention of accounting principles?
Broke? Or Earning A Surplus?
One cause of their excitement might involve the location of the organizations that establish GAAP, the formal standards that define responsible accounting practices. GAAP is promulgated by the Financial Accounting Standards Board and its sister entity, the Governmental Accounting Standards Board; both are located in the same office complex in Norwalk, Connecticut.
So whenever a Nutmegger hears about accounting principles, he might understandably feel compelled to give a cheer for the home team. And yet that still doesn’t explain why the Connecticut Society of CPAs (CSCPA) would establish an entire web site to declaring that “Connecticut is broke,” and urging that legislators “fix our future.”
Broke? How can the state be broke when its budget reportedly earned a surplus last year? It all depends on how accountants calculate budgets; hence the excitement over accounting principles!
Abuse of Credit
Accounting standards are universal in nature; generally speaking, the same policies and procedures that make sense for a single family likewise make sense for an entire state government.
Let’s consider an individual’s abuse of credit, for instance. Is it wise for an individual to use a credit card at a grocery store if he doesn’t know how he will find the money to pay off the debt in the future? Of course not; sooner or later, the debt will inevitably become due and the individual will go broke.
But if “obtaining funds through a credit card” is accounted for as “incoming cash,” and if “payment for groceries” is accounted for as “outgoing cash,” then such an individual might account for himself as “breaking even” on the day that he purchases his groceries. Heck, if he asks his grocer to add an extra $100 to his bill in order to receive $100 in cash-back pocket money, he might even claim that he has earned $100 in profit by purchasing his food on credit!
These are the types of accounting tricks that the state of Connecticut (and many other states as well) have played for years, tricks that permit legislators to claim that cash surpluses are being earned while long term debt levels build and build. The legislators who cheered during Malloy’s speech, though, were clearly determined to change their state’s profligate ways.
Travel to Connecticut!
Are you curious about the financial predicament facing our states, and the stark choices that confront us? If you live in Connecticut, or if you simply admire the lively dispositions of their boisterous legislators, you can track the state’s budgetary developments at the CSCPA’s flagship blog site.
Don’t forget to follow the news about other states and cities as well, ranging from California’s creative accounting gimmicks to Chicago’s parking meter lease transactions. Nevertheless, if you’d like to visit a state where the legislators actually interrupted an inaugural address to cheer about GAAP …
… travel to Connecticut!