Did the State Government Cook the Books?

The Revenue and Transportation Interim Committee uncovered some "interesting" accounting methods of the Department of Administration on Wednesday.

The questionable accounting is connected to the administration's interpretation of HB 9, which included potential tax rebates if state revenues exceeded a certain amount. More specifically: "If the unaudited general fund revenue received in fiscal year 2007 exceeds $1,802,000,000, for each $1,000,000 greater than $1,802,000,000, the factor in subsection (1)(b)(i) must increase by 0.1 for tax year 2007 only."

In July, the administration announced that the trigger set out in HB 9 had been met. The Department of Administration certified on July 27th that general fund revenues were $1,838,053,331, about $36 million over the trigger.

The Legislative Fiscal Division had this to say about the trigger in a report on Wednesday:

"The language in HB 9 states, in part, that 'general fund revenue is as recorded in the statewide accounting, budgeting, and human resources system using generally accepted accounting principles in accordance with 17-1-102(2).' Based on information from the Department of Administration, state accountant, general fund revenue as defined by generally accepted accounting principles does not include certain items. These item transfers, proceeds of general fixed asset disposition, and inception of lease amounts. If these items had been excluded, then fiscal year 2007 revenues as defined by generally accepted accounting principles would have been $1,769,007,440 or about $69 million less than the amount certified by the executive. If this definition had been used as prescribed by law, then no funds would be available for tax credits. In the certification letter, the Department of Administration points out that the certified revenue amount is different than the amount used in the preparation of the state's comprehensive annual financial report (CAFR). The CAFR is prepared according to generally accepted accounting principles."

In short, the administration used an incorrect accounting method to inflate general fund revenue numbers. Without the wrong calculation, no additional tax rebates would be going to Montanans. The end result of not following the language in HB 9 is a good one: Montanans will get more money back.

So does a good result negate some shady accounting that did not follow the law? We would have liked to see even more money going back to taxpayers. Business owners will see next to nothing in tax relief after a $1.4 billion surplus. We're not complaining about the fact that a chunk of change will be going back to taxpayers.

So how about it? Do the ends (more money for taxpayers) justify the means (using bunk accounting numbers)? Interesting policy question......

Comments

[Old Crank]

What’s cooking with Terry Johnson?

Terry Johnson, a legislative staffer, recently got Republicans to flap about Schweitzer certifying $36 million too much for tax cuts contained in HB 9, Republican Sonju’s bill in the May special session. Repubs including Rep. Sonju are charging, “Enron-accounting” and “cooking the books”. But who’s doing the cooking?

Here’s what Terry Johnson reported in the legislative fiscal division’s September 2007 The Interim newsletter:
"...the certified revenue amount was about $1.838 billion which is approximately $36 million more than the trigger amount. This means that taxpayers will receive $36 million in tax credits that may be claimed on their tax year 2007 returns." See full article here: http://www.leg.mt.gov/css/publications/interim_newsletter/default.asp

In other words, the triggers had been met. Not one word about any difference of opinion with Schweitzer’s bean counters. But then in a September 18 memo Johnson does a big switcheroo by changing his mind about the triggers, and in effect, says that they were NOT met. No funds available for tax credits

Here’s part of what Johnson said in his later memo to legislators
"...If this definition had been used as prescribed by law, then no funds would be available for tax credits." See full report here (under meeting material, fiscal trigger report): http://www.leg.mt.gov/css/committees/interim/2007_2008/rev_trans/meeting_documents/materials.asp

So which is it, Terry? $36 million in tax breaks or ZERO? What did Sonju intend when he sponsored HB 9? If you’d told him that your staff had written his bill so that it was essentially certain that there would be NO tax relief, what would he have said then? Who’s cooking whom?