A pro forma statement is a financial document that projects future financial performance based on certain assumptions or hypothetical scenarios.
That sounds like a wise idea.
These statements often include pro forma income statements, balance sheets, and cash flow statements. They are typically used for budgeting, forecasting, or assessing the potential impact of business decisions, such as mergers, acquisitions, or new projects.
That sounds awesome.
By using pro forma statements, businesses can present a clearer picture of expected results and evaluate how various strategies might affect their financial health. They're also commonly used to communicate financial expectations to investors or stakeholders.
So, again why aren't the state and local governments doing this?
Might there be an underlying belief at every level of government that it can never run out of money because it will always have the taxpayer to tap?
Let's look at what our report on Longview, Texas, revealed besides the dismal financial outlook. City Spokesman Richard Yeakley and City Manager Rolin McPhee responded to our report by discussing the differences between businesses and governmental entities.
According to McPhee, "Businesses keep surpluses so they can pay off debts should the business become insolvent." (He doesn't think cities can go insolvent)
Yeakley added, "People sometimes think of municipal finances as if they're like personal finances. People save money so they can stop working one day and then live off that saved money for the rest of their lives." (Doesn't the city have to save up for the retirement of all its workforce?)
"A city does not stop producing. We've been around for 150-plus years, because we are the city of Longview, and we will continue to be the city of Longview, so the expectations of revenue ceasing to come in, or, you know, having to balance future expenditures without that additional revenue — it is different for a city context than it is for a personal financial context," Yeakley said. (Mic drop, they just proved our premise!)
Our research shows that the current ideology is leading to and allowing fiscal mismanagement. Because we understand that the taxpayer pays the cost of fiscal mismanagement, Truth in Accounting advocates for what we coined *FACT-based accounting at all levels of government.
Or, at the very least, a pro forma statement!
Last fun fact: the government's reason for strict corporate accounting is "to protect the investor."
Shouldn't they want the same for the taxpayer?
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*FACT-based accounting stands for full accrual accounting technique and aligns with the government's strict standards for corporations.