To be informed participants in their governments, citizens must be provided with truthful, timely and transparent information. State efforts to fill their financial holes must start with honest accounting of states’ true fiscal conditions. Only then can sustainable alternatives to place the state on solid financial footing be developed and debated.

Recommendations to Elected Officials

Responsible budgeting requires accurate and timely data. Truthful budgetary accounting must incorporate all current compensation costs, including the portion of retirement benefits employees earn every year. Accurate accounting requires all real and certain expenses be reported in the state’s budget and financial statements when incurred, not when paid. Therefore elected officials should:

• Take the first step towards sound financial planning: determine the true financial condition of your state. We demonstrate how to do this in each state’s “Financial State of the State”
• Recognize that responsible budgeting requires truthful data based upon sound accounting principles
• Adhere to the intent of your state’s balanced budget requirement. Balanced budget requirements exist in state constitutions and/or statutes to prevent current legislatures and governors from passing current-period costs onto future taxpayers. Simple equity says it is unfair for one generation to burden a future generation with costs for which no services or benefits are received
• In budget calculations, include all costs and obligations associated with pensions and retirees’ health care benefits, which, like salaries, are a form of current compensation
• Institute FACT-based budgeting, which includes all costs when incurred, not when paid.
• Leave actuarial assumptions to professional actuaries, but don’t take them for granted. Watch the watchdogs
• Stop creating Taxpayer Burden and reduce the burden you have inherited as quickly as possible
• Use StateDataLab.org to develop a better understanding of state finances, and to create graphs and charts to assist in educating constituents
• Mandate issuance of the state CAFR no more than 180 days after the fiscal year end and prior to budget negotiations for the next budgetary cycle
• Provide resources, including a centralized computer system and personnel, needed to prepare the CAFR within 180 days, and preferably sooner. Look to Michigan and Utah, among other states, for good lessons on how to improve CAFR timeliness
• Require the actuarial valuations of pension and retirees’ health care plans to be prepared using the same fiscal year end as the state CAFR and issued annually before the CAFR

Recommendations to State Financial Report Preparers

• Do not issue the CAFR with a letter of transmittal dated days, or weeks, before it is issued to the public
• Maintain a record of the contributions the state, as an employer, makes into each retirement plan
• Disclose in the CAFR notes the contributions the state, as an employer, made into each retirement plan for the reporting fiscal year and two prior years.
• If a column for Component Units is presented in the financial statements, then a column titled “Total Government” should also be included. This column would add the amounts in the Component Units column to those of the Primary Government column
• In the notes to the CAFR prepare separate inter-fund schedules for the account balances and transactions of the Blended Component Units and the Discretely Presented Component Units
• Incorporate Discretely Presented Component Units in the summarized Statement of Net Assets and Statement of Activities included in the Management’s Discussion and Analysis section of the CAFR
• In the CAFR, present all numbers in a consistent format throughout the report, including notes, using either thousands (000) or Millions (M) to reduce carrying errors. The number of significant digits should be standardized as well

Recommendations for the Electronic Version of the CAFR

• Standardize pension and OPEB documents, exhibits and notes for all states and component units
• In the state CAFR, include links to all of the state’s pension and OPEB plans’ websites and related actuarial reports, and links to component units’ financial reports, retirement plans and related actuarial reports
• Disclose in each of the CAFRs or Actuarial Valuation Reports of multi-employer, cost-sharing retirement plans, each employer’s share of the unfunded actuarially accrued liability, including that of the state. Wisconsin and a few other states have done this. Others should follow suit by directing their actuaries to reveal this level of detail in their reports
• All exhibits should have columns and rows totaled to the extent they are additive
• Publish the electronic version of the CAFR and related documents in searchable PDF format. Users should be able to select and reprint sections of the CAFR of interest to them
• Include bookmarks (or a clickable table of contents) identifying each section of the electronic version of the CAFR to provide direct access to various parts of the document
• “Unlock” electronic versions of the CAFR and any subsidiary reports, so analysts can copy and embed exhibits in their own reports
• Match the page numbers of the hard copy CAFR with the numbers that appear in the PDF’s page number box

Most of these suggestions do not require GASB action and some states have already begun to make these improvements to their reporting practices. However, GASB could promote the process by including these recommendations in their standards.

Recommendations to Public and Public Interest Organizations

• Use State Data Lab to better understand your state’s finances and to create graphs and charts to assist in the education of your fellow citizens
• Encourage your governor and legislators to follow the intent of your state’s balanced budget requirement by truly balancing the budget, without using accounting tricks
• Promote accountability of your elected officials by demanding that your state’s financial burden not be increased, but be reduced as quickly as possible
• Promote early adoption of GASB’s new pension reporting requirements
• Encourage GASB's approval of the improvements to retirees' health care liabilities standards
• Until those changes are made, keep in mind that liabilities reported on your state’s balance sheet do not necessarily include all of the state’s pension and retiree health care liabilities
• With that caveat, read your state’s CAFR including all notes about retirement systems. To find a link to your state’s financial report, select your state on the map at State Data Lab
• Understand the financial condition of your state by reviewing its Financial State of the State
• Demand that state actuarial reports be readily available to outside analysts. This could be in the form of links in the electronic version of your state’s CAFR and a note in the hard copy version. This will increase transparency regarding critical assumptions used to calculate your state’s retirement plans’ unfunded liabilities and required contributions and employee eligibility requirements
• Let government officials know you expect them to implement the recommendations to CAFR preparers outlined above
• Educate legislators on the value of introducing and obtaining sponsors for an act to require truthful accounting in your state and local governments (Truth in Accounting Act) 

Additional recommendations include:

• Call for each employer’s share of UAAL to be included in multi-employer, agent retirement plans’ CAFRs
• Format the current government-wide Statement of Net Assets and Statement of Activities to include an additional column for “Total Government”, which adds the “Primary Government” column to the “Component Units” column
• Synchronize the fiscal year of the state and its component units, to eliminate timing differences within inter-fund accounts. Private sector corporations and subsidiaries are required to use the same fiscal year- end, for that reason
• Call for inclusion of Discretely Presented Component Units in the summarized Statement of Net Assets and Statement of Activities included in the Management’s Discussion and Analysis section of the CAFR
• Require the disclosure of information about component units’ retirement plans in the state’s CAFR

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