Weinberg Attends Peterson Foundation Fiscal Summit
On April 28th, Sheila Weinberg attended the Peter G. Peterson Foundation ‘2010 Fiscal Summit: America’s Crisis and A Way Forward,’ a meeting to launch a national bipartisan dialogue on America’s fiscal challenges. The Fiscal Summit included a range of voices including keynote speaker former U.S. President Bill Clinton, OMB Dir. Peter Orszag, Alan Greenspan, Paul Volcker, former Treasury Sec. Robert Rubin and Wisconsin Representative Paul Ryan.
To kick off the Summit, the Foundation released results of an extensive survey of former government officials who have held top positions in economic and budgetary offices. The survey gauged how these senior officials viewed the fiscal problems facing America, and the critical actions Washington must take to address them.
As a participant at the Summit, Weinberg had the opportunity to pose this question to President Clinton: ‘If Congress knew the true cost of their financial decisions, would different decisions be made now and in the future?’ President Clinton acknowledged that while ‘politics’ always has an influence on decision-making, knowing the true costs of any initiative or program would obviously be a benefit. In addition, Clinton acknowledged that states are ‘playing accounting tricks’ and that is also a big problem.
Following the Summit, the survey results and key findings will be submitted to the National Commission on Fiscal Responsibility and Reform, which will present its recommendations at the end of this year.
Click here to watch C-Span coverage of the event.
Click here to view Weinberg’s photo album of the event.
Click here (pdf file) to read Weinberg’s excerpts of Clinton’s comments.
Truth in Accounting Expert Uncovers $40 Million Error
The Daily Herald calls Rick Skiba, an Institute expert advisor, a hero for uncovering a series of accounting errors that caused the Du Page Water Commission to nearly bleed its $69 million reserve fund dry.
In an April 20 article the Daily Herald stated the following:
“Rick Skiba is hailed as the man who discovered the commission’s reserve fund misspending. He retired from the commission in 2004 after 16 years as the agency’s financial administrator. He was brought back in September when the now-former financial administrator Max Richter went on personal leave. A few days into the job, Skiba discovered accounting anomalies that revealed the commission was spending its reserves on operations and had about $40 million less in the bank than commissioners believed. Richter was fired, while General Manager Bob Martin and Treasurer Rod Thorn resigned in the wake of a forensic audit that pointed to ineptitude on Richter’s part and mismanagement on Martin’s.’
As reported by the Daily Herald newspaper last December, the Water Commission needed to borrow $30 million after unknowingly depleting its construction reserve fund with operating expenses over the past two years.
After Skiba uncovered the designated funds had been spent on ongoing operating expenses, forensic auditors were hired by the Commission to ascertain the full extent of the errors.
‘Some of us have asked questions for years, and no one has held staff accountable,’ board member Liz Chaplin told the Daily Herald. ‘My point is that when you buy water at a rate higher than what you’re selling it for, you can only sustain that for so long before you get into trouble.’
The Daily Herald has written numerous articles about Rick’s discoveries and the disastrous consequences the accounting errors caused. These stories highlight one of the Institute’s key messages: If you don’t have the true information, you can’t make knowledgeable decisions.
Fortnightly Club of Chicago Presentation
Here are two thought provoking questions: 1) In 1984 you had debt of $50,000. Since that time, you have balanced your budget. How much debt do you have now? 2) The State of Illinois had $5 billion of debt in 1984. Since that time, the state’s budget has been balanced. How much debt does the state have now?
These and other questions prompted a lively discussion by Sheila Weinberg on ‘Budget & Lies’ at the Fortnightly Club in downtown Chicago on April 8th.
Sheila explained that while Illinois is meeting its state balanced budget requirement, because of its use of ‘political math’ that same $5 billion in debt has escalated to more than $98 billion over the past 26 years.
Illinois’ use of fund accounting creates budgets prepared almost entirely on a cash basis, where activity is reported when cash changes hands, not when obligations are created. This practice creates incentives to delay writing checks to state employees (in terms of higher wages), but instead to reward workers with unfunded promises of increased pension and health care benefits in the future.
The use of this short-sighted accounting method allows politicians to circumvent the intent of the state’s balanced budget requirement. Sheila advises the use of Full Accrual Calculations and Techniques (FACT) when calculating the budget. FACT based budgeting would illuminate the long term financial consequences of budget decisions and disclose the complete picture of the state’s financial condition.
Accurate financial reporting is also necessary for lawmakers to understand the true amount of government resources. As our forefather Thomas Jefferson once stated, ‘An informed electorate is the basis of a sound democracy.’
Proposed Illinois Taxpayers’ Fiscal Charter Includes Truth in Accounting Act
Illinois State Rep. Jim Watson (97th District -Jacksonville) recently proposed a Taxpayers’ Fiscal Charter for Illinois. In addition to recommending a two year freeze on discretionary spending and the implementation of ‘Pay As You Go’ policies, it also includes the Truth in Accounting Act that the Institute helped co-author.
Watson stated, ‘If there is a silver lining to our current economic crisis, it is that it provides the opportunity to reinvent government and fundamentally change how Springfield operates. We have to institutionalize the one reform that can prevent future meltdowns of this magnitude: spending restraint. In short, we must make it harder for lawmakers to spend your money’.
He continued, ‘While this Charter will not solve the philosophical debate of ‘more taxes’ vs. ‘more cuts,’ it will ensure that once that debate is settled, our state’s expenditures will not exceed our revenues.’