CPAs: Connecticut is already bankrupt

Connecticut’s accountants have noticed an unhappy pattern.

The state is:

• 50^th in debt per person
• 48^th in debt as a share of personal income
• 49^th in funding of pensions
• 49^th in amount of working capital

The Connecticut Society of Certified Public Accountants is running a campaign, called Fix Our Future, to raise awareness of Connecticut’s financial problems – and promote the adoption of actual solutions instead of gimmicks and stopgaps.

“We’re not going broke. We’re broke right now,” said Marcia Marien, president of the Connecticut Society of Certified Public Accountants, who gave a presentation at the Capitol Tuesday at the invitation of House Minority Leader Larry Cafero, R-Norwalk.

Cafero said he invited Marien to give her presentation after seeing it at a Chamber of Commerce event. Cafero said the presentation is “enlightening and a little bit scary.”

Although there were no elected Democrats in the room, Marien shied from partisanship.

“There’s no political party to blame,” she said. Instead she said the people of Connecticut are to blame for not holding their government more accountable.

Marien said the CPAs want to educate, protect and rally the public in order to find solutions.

Marien said she has heard many, including her own representatives, say, “Well, it’s a recession everybody’s doing bad.” She said the numbers show there are additional problems beyond the current economic conditions.

She said over the last five years state revenues have increased 5 percent, while state spending increased 28 percent.

Marien said the federal government provided stimulus founds that helped the states get by recently, but that practice won’t continue. “The federal government doesn’t have the resources, either,” she said. “We have to fix our future.”

A state or business should have 10 to 15 percent of its budget set aside as working capital, according to Marien. She said 15 states have less than 1 percent set aside, four have a negative percentage and only one state is has a more negative ratio than Connecticut.

The state has $2.6 billion in assets that will turn into cash in 60 days, while it has $3.6 billion in liabilities that use its cash in 60 days, Marien said. The state also has $600 million committed to specific purposes, leaving it with a net available balance of negative $1.6 billion.

Marien said the rainy day fund, which exists by statute and contains $103 million, is insignificant in this context.

Connecticut doesn’t fare much better on its long-term balance sheet, according to Marien.

“In the financial statements, our liabilities are almost twice what our assets are,” she said.

Connecticut ranks last among the states in debt per person ($4,459), according to Marien, and 48^th in debt as a percentage of personal income (8.7 percent).

Marien said other post-employment benefits, primarily health insurance for retired former state employees, are being phased onto state balance sheets over 30 years. Only three-thirtieths or 10 percent is currently included. The remaining 90 percent will be added over the next 27 years.

Only West Virginia has funded a smaller percentage of its pension obligations and the state is in even worse shape when it comes to OPEB, according to Marien.

“We’ve paid nothing,” she said.

When all of the long-term obligations – debt, pensions and OPEB – are combined, the cost is almost $50,000 per Connecticut resident, more than any other state.

Marien said including Office of Fiscal Analysis estimates of pension obligations ($20 billion) and OPEB obligations ($30 billion), the state has $70 billion in liabilities, 4.5 times its assets.

The state’s OPEB obligations are expected to reach $40 billion by 2017.

Connecticut has long-term net assets worth negative $54.8 billion.

On a budgetary basis, Marien said, the state has negative 55 percent of its expenses set aside. This means the state will effectively use next year’s revenue from July to January to pay the previous year’s expenses – without putting a cent toward the ongoing cost of state government.

“The revenues went against the budget as fast as possible and expenses went as slow as possible,” Marien said, explaining how the state has used its nonstandard form of accounting to make the budget appear balanced.

A transition to Generally Accepted Accounting Principles, sought by Gov. Dannel Malloy, would prevent these shifts from happening.

Marien pointed out that voters approved a spending cap amendment to the Connecticut Constitution, but the legislature has yet to define the terms in the amendment – after nearly two decades.

“We have to make hard decisions now. We can’t pass it to our children,” Marien said. “We’re passing it to our grandchildren.”

“This is chilling,” Cafero said. “But it’s the real news.”