I was the Treasurer of the Student Government Association in college.\u00a0 That’s where I learned that government entities use accounting that is completely different than what a business uses – something I wasn’t taught in any of my accounting classes.<\/p>\n
In a business, each period you add up your sales and subtract your expenses, and what is left over is the profit.\u00a0\u00a0 The profit is either paid out to the people who own the company or reinvested back into the business to make it grow.\u00a0\u00a0\u00a0 The things that are owned by the business and debts owed by the business are tracked on the balance sheet, and as the company buys and sells things used to make the products (like equipment, buildings, land) the gain or loss on the sale of those capital assets is added to the profits and the net worth of the company.<\/p>\n
Governments don’t work like that at all.\u00a0\u00a0\u00a0 Governments raise revenue (usually through taxes) and spend the money.\u00a0\u00a0\u00a0 They don’t look at profit and loss and don’t maintain a balance sheet of what they own or owe. \u00a0 The only influence loading up on debt has is when there is an interest payment due in the current year. \u00a0\u00a0\u00a0 Governments do their accounting on a cash basis, only paying attention to the bills that have to be paid this year.\u00a0\u00a0\u00a0 Zero coupon bonds are especially attractive as there is no interest payment required and they don’t show up as a cash outlay until they need to be refinanced at maturity, at which time the people who sold them are retired or dead.<\/p>\n
So without tracking a balance sheet and showing liabilities and contingent liabilities, any notion of a “balanced budget” is nonsense.\u00a0\u00a0\u00a0 States will just take current operating expenses and borrow money to pay them, or just completely ignore the future costs in their budget process and deal with them in the future when the bills come due – things like state employee retirement promises.<\/p>\n
http:\/\/connecticut.statebudgetwatch.org\/files\/2011\/05\/CT-2010-Trifold.pdf<\/p>\n
Connecticcut is #50 out of 50 – the state with a population of about 3.5 million has promised unfunded benefits to state employees and borrowing to the tune of $74 bilion.\u00a0 They calculate that this is a burden of $49,000 per taxpayer<\/span>\u00a0\u00a0 (note that not all people are taxpayers).<\/p>\n http:\/\/statebudgetwatch.org\/<\/a><\/p>\n have a a look at your state and have a stiff beverage handy.<\/p>\n <\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" I was the Treasurer of the Student Government Association in college.\u00a0 That’s where I learned that government entities use accounting that is completely different than what a business uses – something I wasn’t taught in any of my accounting classes. … Continue reading