government accountants feel the heat of fiscal crises

how fiscally endangered are your state and local governments?

by rick telberg

if you think your life is busy and stressful, pause for a moment to consider the lot of today’s accountants in government.

on the one hand, government, in general, is a growth industry in need of more and more sophisticated professionals. on the other hand, state and local governments throughout the nation are facing budget problems every bit as severe as their constituents.

if you’re like many accountants and finance managers, you’re already feeling the effects of the government financial crisis. california was the first to issue ious instead of checks to vendors. but now new york has become the latest in a long list of states that are warning that their tax refunds this year could be delayed.

the new york budget office estimated “hundreds of thousands” of taxpayers would receive refunds a couple of weeks later than normal. last year, new york paid $6 billion in refunds to 6.5 million households. north carolina is delaying refunds. kansans can e-file or wait 16 weeks. hawaii taxpayers may be waiting until july for their refunds. the best an accountant can do is to consider suggesting to clients that they re-figure their withholding.

cpa diane kennedy has studied the problem and created a top ten list of “the most dangerous states to live in right now, at least fiscally-speaking,” in terms of tax increases, reduced services and delayed refunds.

the most “fiscally-dangerous” states

1. california 6. new jersey 2. oklahoma 7. new york 3. arizona 8. nevada 4. illinois 9. colorado 5. hawaii 10. michigan

source: diane kennedy, cpa

state and local treasurers and comptrollers are grappling with revenue shortfalls, budget cuts, layoffs, cutting medicaid even as enrollments surge and closing prisons and schools. state budgets have actually declined for the first time since the 1980s and spending increases are expected to lag inflation. the declines have been so rapid that 43 states were still cutting budgets even after their budgets were approved.

after all that, brian sigritz, the fiscal studies director at the national association of state budget officers, says state governments are still headed for a cliff. the nation’s overall gross domestic product (gdp) may be showing signs of recovery, but there are no signs of improvement in at least half the states. and in 37 states, economies will continue shrinking at least through this year, he says. it usually takes five years for state and local budgets to recover from just a typical recession. but sigritz expects long-term spending pressures to persist in health care and schools. the only bright spot, according to sigritz and many of his colleagues in government finance, is that prolonged austerity could create political opportunities for long-lasting reforms.

hundreds of debt-laden cities and municipalities are now seriously considering chapter 9 bankruptcy. created in the great depression, there have only been 600 cases since. now we could see just as many in the next few years. the largest chapter 9 filing was in 1994, when “merrill lynch,” in the words of the wall street journal, “bankrupted orange county, calif., via a form of unsuitable investments that lost a billion-plus dollars on a form of interest rate swaps.”

at the same time, governments are looking in every nook and cranny for new tax revenue. as one finance manager at a small business told me, “states are becoming more aggressive with collections.” to add insult to injury, he added, “some areas are decoupling from federal tax rules and regulations,” creating new complexities and confusion.

many states are turning to so-called “amazon taxes,” to collect sales tax on out-of-state internet transactions. in virginia, for instance, tax writers claim nexus because amazon has a couple of distribution warehouses in the state. but they don’t stop there, virginia argues nexus based on amazon’s agreements with affiliates. sales tax experts have practically given up on a new, streamlined system that’s been contemplated for almost 10 years now. unless congress steps in to narrow nexus, electronic commerce could be severely affected, said joe henchman, an official with the tax foundation, in testimony last month before congress.

“the worst probably is yet to come,” warned gov. jim douglas, r-vt., chairman of the national governors association, at the group’s meeting last week.

all of this adds up to a huge new demand for government finance professionals. your communities need your voice and your cpa expertise as never before. sadly, it’s enough to keep many accountants busy for a long time.

comments: rants, raves, questions, ideas? click here to e-mail rick telberg now.

copyright 2010 aicpa.

posted on march 1, 2010