Stop playing with the numbers

by Keli’i Akina, PhD, President, Grassroot Institute, February 19, 2021

If you had $1,000 in the bank and $10,000 in credit card debt, would you tell people you have a budget surplus?

If you said “Yes,” then you may have a future in politics.

When it comes to budgets and accounting, politicians have successfully convinced voters that the ordinary rules of fiscal accountability shouldn’t apply to government. 

But how can that be? 

If anything, transparency and accounting standards matter even more when we’re talking about our state, county or federal government budgets. After all, their debts and expenses are paid with the money earned by us, and when the money runs low, we’re the ones who end up paying more or making do with less. 

Our state and county budgets should not be abstract concepts. In a very real way, they are our budgets.

On this week’s episode of “Hawaii Together” on ThinkTech Hawaii, I interviewed Sheila Weinberg, founder and CEO of the national watchdog group Truth in Accounting. Weinberg has made it her mission to expose how governments use accounting trickery to hide the real condition of their finances from voters.

For instance, consider my opening illustration about claiming a surplus when you have $1,000 in the checking account and $10,000 in credit card debt. That’s very much like what the state and counties do when it comes to our unfunded liabilities. They’ll claim that we have a surplus when the general fund and budget reflect a positive balance, all the while ignoring the billions of dollars of debt. 

Even a claim that we’re keeping up with those liabilities, or that they’re not due for years to come, distorts the truth. As Weinberg pointed out, those debts exist in full right now. They’re a very real part of our financial picture.

You wouldn’t pretend that your credit card debt isn’t part of your financial situation just because you can keep paying installments for the next 20 years. Why should the government get away with doing so?

And that’s not the only way that governments use rose-colored spreadsheets to make their finances look better. In addition to minimizing the importance of debt, they also tend to inflate the positive side of the balance sheet with things like capital assets — property, buildings, etc. While these technically are assets, they should not be part of the calculations when it comes to budget and accounting issues. As Weinberg points out, you don’t approach your own budget like that because you’re not going to sell your house to pay your utility bill.

In truth, our state and local finances are in worse shape than we think. The debt is more serious than many people know, but the fancy footwork of government accounting is able to hide that fact.

Before we can even begin to fix our budget and spending issues, we need to have a better idea of our actual financial situation. That’s why the Grassroot Institute has joined Truth in Accounting and other groups in pushing for more stringent and honest government accounting standards.

Just last week, we submitted a letter to the national Governmental Accounting Standards Board urging it to reject two proposed changes that would allow government officials to further obscure the impact of long-term liabilities on their state finances.

Elected officials should not be able to play accounting games with taxpayer money. The people deserve to have the full and unvarnished truth about government debt, spending and budgeting. Otherwise, how can we make informed decisions about our future — and the future of the elected officials who are asking for our votes?

We need to demand more transparency and accountability when it comes to government accounting practices. 

After all, we’re the ones who will ultimately end up paying the price for those hidden debts.

E hana kākou! (Let's work together!)

Keli'i Akina, Ph.D., President / CEO

WEINBERG INTERVIEW

LETTER TO GASB