GAAP credibility gap, once again

So much for the commitment to GAAP.

You remember GAAP, right? Never did an accounting term receive so much public attention. When running for governor in 2010, Dannel P. Malloy made commitment to GAAP his "Exhibit A" that he was a Democrat serious about fiscal responsibility. Once elected, it was the subject of his first Executive Order and was the loudest applause line in his first address to the General Assembly.

GAAP stands for Generally Accepted Accounting Principles, the standard used by private industry. It requires that expenses and revenues be assigned to the year in which they are incurred and collected. It replaces the modified cash basis system, long used by the General Assembly and administrations to rationalize accounting tricks, such as counting revenues prematurely and pushing expenses into future years.

And to be fair, the Malloy administration is doing a better job than its predecessors in converting state accounting to GAAP principles.

But to be truly GAAP compliant, Connecticut at some point must have its day of reckoning. All that past budget fudging has left the state with what is called the "Cumulative GAAP Deficit," now about $1.7 billion. In other words, use GAAP to do the counting and Connecticut finances are still deeply in the red.

This budgetary millstone around the state's neck can impact its bond rating and ability to deal with future fiscal crises.

Recognizing this, Gov. Malloy worked with the legislature to include, as part of the current budget, a plan to get rid of that GAAP differential - a long, long-term plan. Beginning with the fiscal year that starts July 1, 2013, that commitment calls for closing the GAAP over a 15-year period.

To do that future legislatures and governors will have to commit to pay about $115 million per year. No matter what the other priorities, problems or politics, the money will be set aside for GAAP compliance.

Yeah, right.

As reporter Keith M. Phaneuf reports for The Connecticut Mirror, it's been tried before. In 1993 the legislature enacted a law mandating paying off the GAAP differential over 14 years, beginning in 1996. When the time came, successive legislatures and governors ignored the mandate.

Will this time be different? Things are not off to a good start.

For while the administration conspired with the legislature to put off paying down the GAAP for a couple of fiscal years, it committed to at least paying enough so the GAAP deficit would not grow between now and then. That would mean placing $75 million into the budget reserve when the fiscal year ends June 30.

It is not going to happen.

Faced with fixing a projected deficit that the Office of Fiscal Analysis pegs at $275 million, the administration rather not try to come up with another $75 million.

"We can't because of this year's budget situation," Office of Policy and Management spokesman Gian-Carl Casa told the Mirror.

"Because of the budgetary constraints we have this year, that (first GAAP payment) is not going to happen," added Rep. Toni E. Walker, co-chair of the Appropriations Committee.

Comptroller Kevin Lembo tells us the failure to meet this very first GAAP payment "is of grave concern." If he sees a repeat in the next fiscal year he said he will protest, loudly.

As for Gov. Malloy, rather than reassuring reporters "we are aggressively implementing GAAP," he should candidly concede that current priorities are taking precedent over closing the GAAP deficit. Then he has to make the case why the public should trust things will be different going forward.

Making campaign promises is always the easy part.