Op/Ed from Tom Davis: County adopts 2020 ‘Monkey’ Budgets

County 2020 budget numbers are based on the first full year of accounting using Cash Basis accounting, as adopted in July 2018 (Resolution #48-18).

The 2017 Current Expense budget was so turbulent it required midyear cuts of 17.5%, and the 2018 budget was not looking any better. In the past, commissioners had tried to cover budget shortfalls by shifting money around (the old shell game) but those numbers had now grown too large to hide under a cup. So, in July of 2018 the county changed accounting methods, shifting from Accrual Basis accounting, which provides an excellent indicator of long term performance, to Cash Basis, which tracks how much cash money the county has at any one particular time.

Without getting too deep into the weeds, the main difference between the two methods is that with Accrual Basis accounting, expenses are recorded and reconciled in the same budget year they are incurred, while with Cash Basis accounting those same expenses are recorded and reconciled in the year they are paid. And, while the intention may not have been to make upside down budgets look better than they actually are, that is precisely what happened.

Consider the following: The 2018 budget had a beginning fund balance of about 3M. Over the next two budget years, expenses increased by 12.5M while revenues increased by only 4.2M, yet the beginning fund balance in the 2020 budget is forecasted at 11.6M, three times greater than in 2018. That’s because the money not used to pay expenses in the year they’re incurred, as would have been the case with Accrual Basis accounting, now shows up (hopefully) as part of the beginning fund balance in the following year’s budget.

For this and other reasons, Cash Basis accounting is best left to the private sector, where investment opportunities need to be addressed in real time and taxes on profits are an issue. Public sector budgets don’t have those problems; what they need is stability, and the guidance that comes from monitoring long term performance measures, as was provided by the Accrual Basis accounting method.

To be truthful, I’m not absolutely certain the commissioners changed to Cash Basis accounting so county finances would look better on paper, just as I am not absolutely certain that the refrigerator light goes out when the door is closed. But it seems reasonable to assume that after all the shell and other games the county has played in an effort to manage the budget, the only thing they hadn’t tried was to monkey with the accounting method.

Tom Davis, Shelton