Generally Accepted Accounting Principles (GAAP) are the standard set of accounting rules and procedures that governments use to ensure financial reporting is transparent, consistent, and accurate. This page covers CBC’s work on transitioning state and local budgets to a modified accrual basis, eliminating fiscal gimmicks, strengthening rainy day funds, managing long-term debt, and improving the transparency of financial plans.
This page was created with AICBC Insights uses AI to group, analyze and present data and recommendations from CBC's publications. Always reference the cited sources to verify important details..
Manage, report, and balance the budget in accordance with Generally Accepted Accounting Principles (GAAP) on a modified accrual basis.
Strengthen the Rainy Day Fund by raising deposit and balance caps, combining all reserve funds, and mandating deposits when revenues are strong.
Strengthen the debt cap.
Tightly tie appropriations to planned spending by reducing unfunded and undefined spending authority.
Require financial plans to be published with the enacted and one-house budgets.
Require fiscal estimates with other legislation.
Prevent the use of Messages of Necessity on budget bills.
Implement comprehensive, transparent long-term capital planning processes.
Fully fund the Authorities Budget Office.
Establish the Independent Fiscal Analysis Office.
Key Data
As of June 2023, the State has made no progress on the CBC's recommendation to manage, report, and balance the budget in accordance with Generally Accepted Accounting Principles (GAAP) on a modified accrual basis.
As of December 2022, the State has historically used cash accounting, which allows for fiscal gimmickry, such as when it delayed $1.7 billion in Medicaid payments for a few days to shift them into the following fiscal year, making current-year spending appear lower.
In December 2022, the CBC noted that in fiscal year 2023, the General Fund represents $96 billion of the total $222 billion cash spending plan, while State Operating Funds ($123 billion) is a more comprehensive measure of the State's operating budget.
As of April 2020, the CBC estimated that if mandatory deposit rules had been in place from fiscal year 2010 through fiscal year 2019, New York City would have had a Rainy Day Fund with $9.0 billion to help manage economic downturns.
In November 2014, the CBC reported that in fiscal year 2013, the New York City Health and Hospitals Corporation (HHC) ran a deficit of $668 million on a GAAP basis, while the estimated deficit for fiscal year 2014 was $645 million.
New York State's current budget process relies on cash basis budgeting, which allows for fiscal gimmickry that obscures structural imbalances and growth trends. To improve transparency and fiscal accuracy, the state should instead manage, report, and balance its budget using Generally Accepted Accounting Principles (GAAP) on a modified accrual basis.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The State should manage, report, and balance the budget in accordance with Generally Accepted Accounting Principles (GAAP) on a modified accrual basis to avoid the pitfalls of current cash basis budgeting.
New York State's reliance on cash-basis accounting allows for fiscal gimmickry that masks true spending trends and budget imbalances. To improve fiscal integrity, the state should transition to budgeting and reporting on a modified accrual basis in accordance with Generally Accepted Accounting Principles (GAAP).
Recommendations related to Generally Accepted Accounting Principles (GAAP)
Manage, report, and balance the budget in accordance with Generally Accepted Accounting Principles (GAAP) on a modified accrual basis.
Strengthen the Rainy Day Fund by raising deposit and balance caps, combining all reserve funds, and mandating deposits when revenues are strong.
Strengthen the debt cap.
Tightly tie appropriations to planned spending by reducing unfunded and undefined spending authority.
Require financial plans to be published with the enacted and one-house budgets.
Require fiscal estimates with other legislation.
Prevent the use of Messages of Necessity on budget bills.
Implement comprehensive, transparent long-term capital planning processes.
Fully fund the Authorities Budget Office.
Establish the Independent Fiscal Analysis Office.
Key Data
$220 billion
— Annual New York State budget collection and spending.
$1.7 billion
— Amount of Medicaid payments delayed by the State to shift them into the following fiscal year.
$9.0 billion
— Total principal reserves at the end of fiscal year 2022.
$3.3 billion
— Amount in the Rainy Day funds (Rainy Day Reserve and Tax Stabilization Reserve) at the end of fiscal year 2022.
$5.7 billion
— Amount in the Reserve for Economic Uncertainties at the end of fiscal year 2022.
$102.4 billion
— Value of 21,282 contract transactions received by the Office of the State Comptroller in 2019.
New York State should transition its budgeting and reporting processes to align with Generally Accepted Accounting Principles (GAAP) instead of relying on a cash-basis system. This shift would improve the integrity and consistency of financial reporting, thereby strengthening the state's overall fiscal footing.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The State should transition to budgeting and reporting in accordance with Generally Accepted Accounting Principles (GAAP), rather than using a cash basis for budgeting and reporting that leaves the door open to fiscal gimmickry.
The State should base fiscal management and balance State Operating Funds in accordance with GAAP on a modified accrual basis to increase the integrity and consistency of the State’s financial reporting and decisions.
New York State has frequently used fiscal maneuvers to obscure the true size and growth of its budget, masking spending trends that have often exceeded reported figures. To improve transparency and accountability, the state should adopt financial reporting practices that align with Generally Accepted Accounting Principles (GAAP) and provide clear, timely updates on its fiscal health.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The State should present clear, timely financial reports that display the true level and growth of State spending, and shift to budgeting and reporting using Generally Accepted Accounting Principles (GAAP).
The State should improve budgeting and financial reporting by foregoing fiscal maneuvers that obscure the true size of the budget.
The State should make clear how any accounting practices affect spending growth in its financial reports.
The State should present timely adopted financial plans and quarterly financial plan updates to improve transparency.
Key Data
$3.5 billion
— The projected fiscal cliff, representing the gap between available funding and planned spending in fiscal year 2025.
5.7 percent
— The decline in State Operating Funds (SOF) spending in fiscal year 2021 after adjusting for fiscal maneuvers.
15.5 percent
— The projected increase in State Operating Funds (SOF) spending in fiscal year 2022 after adjusting for fiscal maneuvers.
$12.7 billion
— The amount of American Rescue Plan (ARP) federal fiscal relief received by the State in May 2021.
1.1 percent
— The true growth of spending on State Operating Funds (SOF) functions in fiscal year 2021 after accounting for federal aid.
New York State's fiscal management requires greater transparency and performance accountability, including the adoption of Generally Accepted Accounting Principles for budgeting and reporting. To ensure long-term stability, the state must also address fiscal maneuvers, build sufficient rainy-day reserves, and transition recurring programs from temporary federal aid to sustainable state revenue sources.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The state should budget and report using Generally Accepted Accounting Principles.
The state should move funds back on budget to improve fiscal management.
The state should stop manipulating the timing of spending to improve fiscal management.
The state should publish the financial plan when the budget is adopted.
The state should publish financial reports on time.
Key Data
$212 billion
— The total size of the state budget for the year.
$1.7 billion
— The amount of a state Medicaid payment that was delayed by three days to make spending appear lower.
$5 billion
— The amount of excess receipts collected above the budgeted amount this year.
$3.5 billion
— The cost of recurring programs currently supported by federal aid that will face a fiscal cliff in four years.
The next New York City Comptroller will play a critical role not only in holding the next Administration and agencies accountable, investing and managing five pension funds with $248 billion in assets, and partnering in $13 billion City debt issuance, but also in spotlighting and promoting New York City’s fiscal…
New York State should avoid using long-term debt to fund operations, and if borrowing is necessary, it must be part of a comprehensive fiscal stability plan that includes balancing budgets in accordance with Generally Accepted Accounting Principles (GAAP). Implementing these GAAP-based standards and requiring constitutional mandates for balanced budgets would improve fiscal transparency and prevent the state from obscuring its true financial condition.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
To ensure appropriate use of debt for operations, such debt authorization or use should require that debt should not support unsustainable spending increases, should be part of a comprehensive fiscal stability plan, and should trigger enhanced fiscal oversight and transparency that includes balancing annual budgets in accordance with Generally Accepted Accounting Principles (GAAP).
Borrowing is part of a comprehensive and feasible multiyear plan that leads to fiscal stability and is presented in accordance with GAAP.
The State should adopt, in law and practice, fiscal integrity and transparency measures that include the transition to an annual State operating funds budget that is balanced in proposal, adoption and at year end in accordance with GAAP, and is certified as balanced by the State Comptroller.
A GAAP balanced budget eventually should be mandated through a constitutional amendment.
Key Data
$11 billion
— The State is proposed to have the authority to issue up to $11 billion of debt for operations.
$1.7 billion
— The State shifted $1.7 billion in Medicaid payments by three days in fiscal year 2019 to obscure the program's fiscal outlook.
2 percent
— Borrowing should not be used to increase state operating spending, inclusive of any federal stimulus aid, more than 2 percent or the inflation rate, whichever is lower.
CBC hosted a special panel discussion of prominent fiscal experts who helped New York overcome some of the most dire crises of the past. They provided insights and lessons from past experiences to help us understand and navigate the looming crisis. Stephen Berger Chairman, Odyssey Investment Partners; Former Executive Director,…
New York City's requirement to balance its budget in accordance with Generally Accepted Accounting Principles (GAAP) under the Financial Emergency Act currently prevents the establishment of a functional Rainy Day Fund. To address this, the state must amend the act to allow for specific, restricted exceptions that enable the city to save for economic downturns without compromising fiscal discipline.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The State should amend the Financial Emergency Act to allow an exception for a Rainy Day Fund, as the current requirement to balance the budget in accordance with GAAP prevents its use.
State law should specify that the only two permissible uses for a Rainy Day Fund are a recession or severe emergency.
State law should define a recession as two successive quarters of economic decline as indicated by private employment or gross city product.
An emergency should be defined as severe when it is accompanied by a revenue shortfall or expenditure increase equal to or greater than 1 percent of the budget.
The City should limit withdrawals from the Rainy Day Fund to no more than two-thirds of the fund balance in any year to ensure funds are available for the second year of a crisis.
The City should implement mandatory deposits equal to 75 percent of the tax revenue growth above 3 percent to ensure sufficient funds are accumulated.
The City should set a target size of 17.2 percent of tax revenue for the Rainy Day Fund, which can serve as a cap on the size of the fund.
Key Data
$1.25 billion
— Amount of reserves New York City has set aside for the upcoming year.
$6 billion
— Near-term revenue loss estimated by the Office of the New York City Comptroller.
$20 billion
— Three-year shortfall estimated if a recession similar to those in the recent past occurs.
$9 billion
— Amount of reserves that would have been netted if the recommended strategy had been followed over the last 10 years.
17.2 percent
— Recommended target size of the Rainy Day Fund relative to tax revenue.
Proposed changes to 'refunds of appropriation' in the Executive Budget would obscure state spending and conflict with generally accepted accounting principles (GAAP) by allowing the state to hide reimbursements and expenses. Furthermore, a separate proposal to allow the transfer of funding between agencies without legislative approval would undermine transparency and override established funding allocations.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The state should reject the measure in the Executive Budget which broadens so-called refunds of appropriation.
The state should reject the proposal that would authorize the Director of the Division of the Budget to transfer funding from state operations to any department, agency or public authority.
The state must ensure the Comptroller’s Office retains its independent constitutional authority to utilize best practices in monitoring state revenues and expenditures.
The state must ensure the legislature can preserve its authority in the budget making process.
Key Data
over 100
— The number of appropriations throughout the State Operations appropriation bill that contain language allowing the Director of the Division of the Budget to transfer funding between agencies.
New York State's Medicaid program has utilized cash-based accounting to defer payments and obscure spending growth, allowing the state to technically adhere to its Global Cap while spending exceeds budgeted amounts. To improve fiscal management and transparency, the state should transition to a modified accrual basis of accounting in accordance with generally accepted accounting principles (GAAP).
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The State should make the Global Cap a cap by following generally accepted accounting principles (GAAP) for Medicaid spending.
Medicaid spending should be recorded when services are rendered rather than when funds are disbursed to preclude the use of payment deferrals to adhere to the Cap.
Key Data
$1.7 billion
— Amount of Medicaid payments deferred by the State in fiscal year 2019 to artificially adhere to the Global Cap.
New York State faces significant budget gaps, exacerbated by structural imbalances and the deferral of Medicaid payments, necessitating a more transparent and disciplined fiscal approach. To restore integrity, the state should adopt GAAP-basis financial plans, avoid budgetary gimmicks, and implement spending restraint across Medicaid, education, and economic development.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The State should include GAAP-basis financial plans in the Executive and Enacted Budgets to ensure expenses are accounted for in the year the obligation is incurred.
The State should include GAAP-basis financial statements in the Executive Budget, 30-day amendments, Enacted Budget, and Mid-Year Update to provide important insights into the State’s financial position and practices.
Key Data
$4 billion
— The fiscal year 2020 budget gap that the State must close.
$7.1 billion
— The fiscal year 2021 budget gap that the State must close.
$28.8 billion
— The cumulative budget gap over four years as shown in the State Mid-Year Fiscal Year 2020 Financial Plan Update.
$1.7 billion
— The amount of Medicaid payments deferred from fiscal year 2019 into fiscal year 2020.
$22.2 billion
— The four-year budget gap reported by the State in its financial plan.
$28.0 billion
— The actual remaining four-year budget gap.
The proposed Rainy Day Fund amendment to the City Charter would allow New York City to save resources during economic growth to mitigate spending cuts and tax increases during downturns. This proposal modifies the requirement to balance the annual budget in accordance with generally accepted accounting principles to permit the use of these saved resources without violating balanced budget mandates.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The City should establish a Rainy Day Fund to accumulate resources during periods of economic expansion and revenue growth.
The City should codify deposit and withdrawal rules for the Rainy Day Fund in City law.
The City should permit the use of the Rainy Day Fund without violating the City Charter and the State Financial Emergency Act for the City of New York balanced budget requirements.
The Charter Revision Commission should have the proposed language reviewed and modified by those with deep expertise in drafting legislation.
The City should modify the requirement to balance the annual budget in accordance with generally accepted accounting principles to allow for the use of Rainy Day Fund resources saved during prior periods.
Key Data
$100 million
— The minimum amount required for the general reserve at the beginning of any fiscal year.
New York City's practice of using the "surplus roll" to prepay expenses allows the city to mask spending that exceeds collected revenues, creating an unsustainable fiscal trajectory. While permitted under accounting standards, this method obscures the reality that spending growth is accelerating and outpacing revenue, necessitating more effective measures to restrain costs and improve productivity.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The Mayor and Council Speaker should continue to identify opportunities to restrain spending much more, particularly in ways that improve productivity so that priority services are preserved.
Key Data
$255 million
— The amount by which the City's spending obligations in fiscal year 2019 exceeded the revenues collected.
$4.576 billion
— The amount the City prepaid in fiscal year 2019 expenses at the end of fiscal year 2018.
$4.221 billion
— The amount of expenses 'rolled out' in fiscal year 2019.
5.7 percent
— The growth rate of City-funded expenditures in fiscal year 2019.
5.3 percent
— The projected growth rate of City-funded expenditures in fiscal year 2020.
333,433
— The number of authorized positions in the city workforce projected for fiscal year 2020.
New York ranks 39th in fiscal health according to a Mercatus Center analysis, largely due to high long-term debt and unfunded postemployment benefits, though the state's fiscal year-end date negatively impacts its cash solvency metrics. Improving the state's financial standing requires reducing long-term debt, funding capital expenses on a pay-as-you-go basis, and reforming post-retirement health benefits.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
To improve the State’s financial health, New York’s leaders should focus on decreasing long-term debt and reducing the State’s OPEB liabilities.
New York must do a better job of funding its capital expenses on a pay-as-you-go basis and look to innovative development tools, such as public-private partnerships, to expand capital investment more efficiently without increasing the State’s debt burden.
The State should go further to adopt proposals to reform post-retirement health benefits rejected by the Legislature and begin contributing toward the new trust fund.
Key Data
39th
— New York's rank out of 50 states regarding fiscal health according to the Mercatus Center analysis.
$9.4 billion
— New York’s All Funds cash balance at the end of March 2015.
$14.8 billion
— New York’s All Funds cash balance at the end of June 2015.
$23.6 billion
— The amount of cash, cash equivalents, and investments New York had on hand at the end of fiscal year 2015.
45th
— New York's rank for outstanding OPEB liability per thousand dollars of income.
The New York City Health and Hospitals Corporation faces significant financial instability, with projected budget gaps reaching $1.7 billion by fiscal year 2018 and cash reserves expected to be exhausted by fiscal year 2017. To address these challenges, the organization must implement effective cost controls, expand MetroPlus enrollment, and establish a more rational financial relationship with the City.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
City leaders should begin a dialogue with HHC and other national health care experts about the best way to rationalize the financial relationship.
HHC leaders can advocate for conditioning available tax exemptions and funding sources on greater participation by all voluntary hospitals in sharing the burden of caring for the uninsured.
Price competition should be used, but cautiously, in expanding the share of this segment of the market.
Service delivery needs to be made more efficient and unneeded hospital capacity reduced.
In order to expand future enrollment HHC will need to take steps to improve the quality of the MetroPlus plan.
Key Data
$668 million
— HHC's deficit in fiscal year 2013.
$645 million
— Estimated deficit for fiscal year 2014.
$1.7 billion
— Projected budget gap in fiscal year 2018.
$316 million
— Unfunded actuarial cost of OPEB in fiscal year 2014.
$100 million
— Amount by which expenditures were lower than disbursements in fiscal year 2014 due to capital-related items.
The Port Authority has successfully implemented the recommendation to balance its budget in accordance with Generally Accepted Accounting Principles (GAAP). This fiscal alignment revealed a $780 million surplus that is available for capital investment.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The Port Authority should balance the budget in accord with Generally Accepted Accounting Principles (GAAP).
Key Data
$780 Million
— Surplus available for capital investment identified in the adopted budget balanced in accord with GAAP.
The Metropolitan Transportation Authority's reliance on cash-basis accounting obscures its true financial instability, which is more accurately reflected by a $2.8 billion deficit under Generally Accepted Accounting Principles. To address this, the agency should adopt a "50-25-25" funding model that balances fare revenue, tax subsidies, and auto-user fees while pursuing consistent cost-reduction measures.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The MTA should adopt the "50-25-25" funding model, which calls for fares to cover 50 percent of full operating costs, a tax subsidy to cover 25 percent, and a cross-subsidy from auto users to cover the remaining 25 percent.
The MTA should utilize Generally Accepted Accounting Principles (GAAP) to accurately assess its financial condition rather than relying on cash basis accounting.
The MTA should enact new forms of auto-cross subsidy, such as higher bridge and tunnel tolls or congestion pricing, to address funding gaps.
Public officials should put renewed energy into cost reduction efforts to improve the MTA's financial standing.
The MTA should continue moderate, regular fare increases to align with the 50-25-25 funding formula.
Key Data
$2.8 billion
— The current annual deficit the MTA is running when using Generally Accepted Accounting Principles (GAAP).
$3.0 billion to $3.4 billion
— The range of annual deficits the MTA will face in each of the next four years according to GAAP figures.
$26.6 billion
— The estimated cost for "core" capital needs related to state-of-good-repair and regular replacement of rolling stock from 2015-2019.
$1.9 billion
— The amount of new resources identified by the MTA since February 2013.
$240 million
— The cumulative total of out-year budget gaps for the MTA.
$1.3 billion
— The amount of savings the MTA intended to achieve annually by 2017 through measures launched in 2009 and 2010.
The Port Authority of New York and New Jersey should adopt a detailed annual operating budget and a four-year financial plan prepared in accordance with Generally Accepted Accounting Principles (GAAP). Implementing these standards, alongside a long-term capital strategy and regular public reporting, would improve transparency and financial accountability for the agency.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The PANYNJ should have a detailed annual operating budget and a four-year financial plan that is prepared in accord with GAAP.
The Board should seek to balance the budget in accord with GAAP, but in response to economic conditions and other special circumstances, deficits may be covered with accrued reserves or other resources as deemed necessary by the Board.
Calculating transit fare ratios requires distinguishing between operating ratios and recovery ratios, the latter of which incorporate capital expenses and retiree health insurance costs as required by Generally Accepted Accounting Principles (GAAP). Understanding these accounting differences is essential for accurately comparing the Metropolitan Transportation Authority's financial performance against other transit systems.
Key Data
56 percent
— The combined New York City Transit operating ratio (OR) which excludes capital and retiree health costs.
40 percent
— The combined New York City Transit recovery ratio (RR) which includes capital and retiree health costs under GAAP.
37 percent
— The New York City Transit recovery ratio (RR) used for comparison against other transit systems.
47 percent
— The San Francisco BART system recovery ratio (RR) used for comparative analysis.
34 percent
— The Washington, DC transit system recovery ratio (RR) used for comparative analysis.
21 percent
— The Chicago transit system recovery ratio (RR) used for comparative analysis.
The MTA's current cash-based budgeting approach masks its true financial condition, leading to recurring deficits and unsustainable debt. The MTA should adopt Generally Accepted Accounting Principles (GAAP) to provide a more accurate and transparent assessment of its financial health and to guide future budget decisions.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The MTA should adopt a budget based on Generally Accepted Accounting Principles (GAAP) to provide a more accurate and transparent financial picture.
The MTA should stop using cash-based budgeting, which has been criticized as a "major enabler of budget gimmickry," and instead align its financial planning with GAAP standards.
The MTA should include the full cost of Other Post-Employment Benefits (OPEB) as a current expense in its budget, as required by GAAP, rather than deferring these obligations.
The MTA should fund regular replacement needs with operating revenues rather than relying on borrowing, which is a practice that obscures the true cost of maintaining assets.
The MTA should prioritize long-term fiscal stability by using GAAP to guide its budget, ensuring that debt service does not continue to squeeze the operating budget.
Key Data
$3,621 Million
— The projected GAAP deficit for the MTA in 2016.
$17.8 Billion
— The cumulative unfunded liability for Other Post-Employment Benefits (OPEB) as of the end of 2011.
$39 Billion
— The projected MTA debt outstanding in 2015.
$1.968 Billion
— The OPEB liability projected for 2016.
Local governments frequently borrow to cover separation costs like accrued sick leave and vacation pay, a practice that masks the need for adequate reserve funding and creates long-term fiscal instability. While Generally Accepted Accounting Principles require the reporting of these separation benefits and other post-employment benefits as liabilities, they do not mandate that governments set aside the necessary funds to cover these future obligations.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
State officials should develop alternatives to borrowing to cope with the underlying problem of accrued liabilities for separation costs.
Localities should implement preventive policies, such as not allowing the lifetime accrual of vacation days and imposing tighter limits on the amount of unused sick leave that can be converted to cash payments.
Towns, cities, and villages should be required to fund at least partially their accrued liabilities for separation costs.
The Legislature should allow borrowing for those who need it now only on the condition of future requirements to build adequate reserves.
The Legislature should prevent future borrowing needs by establishing standards for funding more adequately future separation costs and OPEB liabilities among all localities and the State itself.
Key Data
$46.6 million
— Total annual budget for the city of Glen Cove.
$1.8 million
— Separation costs generated by the retirement of six police officers in Glen Cove.
4%
— The portion of Glen Cove's annual budget consumed by separation costs for six retiring police officers.
$3.9 billion
— New York City's accrued liability for vacation and sick leave at the end of the 2011 fiscal year.
$83.9 billion
— New York City's OPEB liability at the end of the 2011 fiscal year.
$1.2 billion
— New York State's accrued liability for vacation and sick leave at the end of the 2011 fiscal year.
New York City uses multiple accounting standards to define a balanced budget, often relying on a unique version of Generally Accepted Accounting Principles (GAAP) that masks significant deficits. By failing to adopt stricter, more comprehensive GAAP standards that account for long-term liabilities like retiree health benefits and asset depreciation, the city obscures its true financial condition and imposes potential burdens on future generations.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
New Yorkers should be giving much more attention to the financial results disclosed under the new GAAP rules.
Municipal leaders should adopt a new standard for local financial management that moves away from the current self-deluding definition of a balanced budget.
The City should stop using its own unique set of accounting rules that allow operating expenses to be labeled as capital investments and paid for with borrowed funds.
The City should adopt the third definition of a balanced budget, which is the most appropriate framework for determining whether current residents are imposing a burden on future New Yorkers.
Key Data
$9.6 billion
— The deficit for fiscal year 2011 under the new GAAP standard.
$11.7 billion
— The deficit for fiscal year 2010 under the new GAAP standard.
$53.3 billion
— The added expense in fiscal year 2006 when the accumulated liability for retiree health insurance benefits was first recognized.
$282 million
— The deficit for fiscal year 2011 if GAAP were strictly applied without the statutory exemption.
$5 million
— The reported surplus for fiscal year 2011 based on the City's exemption from the GASB rule.
When defining expenses using generally accepted accounting principles (GAAP), the share of Metropolitan Transportation Authority operating costs covered by fare revenue is only one-third. This proportion is projected to remain stagnant at 33% through 2014, highlighting the need for fiscal adjustments to reach a 50% cost-recovery target.
Key Data
33%
— The share of Metropolitan Transportation Authority operating expenses covered by fare revenue in 2009 when defined using generally accepted accounting principles (GAAP).
33%
— The projected share of Metropolitan Transportation Authority operating expenses covered by fare revenue in 2014 when defined using generally accepted accounting principles (GAAP).
$13,134
— Metropolitan Transportation Authority expenditures in fiscal year 2009 calculated on a generally accepted accounting principles (GAAP) basis.
$16,988
— Metropolitan Transportation Authority expenditures in fiscal year 2014 calculated on a generally accepted accounting principles (GAAP) basis.
New York City should maintain its commitment to Generally Accepted Accounting Principles (GAAP) and only grant a temporary, one-year deferral for compliance with GASB 49. The City must prioritize incorporating these remediation expenditures into its budget process rather than seeking permanent exemptions or using long-term borrowing to fund them.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The Board should make clear on the public record that any deferral will be temporary and there is no intention to grant, in effect, permanent or long-term exemptions to GAAP standards.
The Board should make clear that, notwithstanding any brief emergency deferrals, the FCB supports the application of all current GAAP requirements.
Any deferral granted should be as brief as is necessary and practical; that is, for one year.
The City and the FCB should continue to accept the best available standard, the GASB rules, as the basis for defining a balanced budget.
The City should use its budget process to address the difficult tradeoffs among multiple services to taxpayers, and the affected remediation expenditures should be one of the priorities addressed in budget debates.
New York City's budget relies on one-shot measures, such as a $395 million drawdown from a retiree health insurance trust fund, and fails to properly account for $200 million in pollution-remediation operating expenses by capitalizing them instead of expensing them. Despite a projected $4.1 billion budget gap potentially narrowing due to higher tax revenues, the city must prioritize structural cost-cutting over temporary fixes and accounting maneuvers.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The city should avoid using one-shot measures to balance the budget.
The city must recognize mandated items, such as pollution-remediation operating expenses, rather than capitalizing them.
The city should not use additional tax revenue as an excuse to avoid needed cost-cutting.
Key Data
$4.1 billion
— Projected budget gap that may be narrowed due to higher tax revenue.
$395 million
— Drawdown from a retiree health insurance trust fund used as a one-shot budget measure.
$200 million
— New pollution-remediation operating expenses that were previously capitalized instead of recognized.
$500 million
— Assumed future concessions from labor unions included in the mayor's plan.
New York State's reliance on cash-basis accounting rather than Generally Accepted Accounting Principles (GAAP) obscures the true fiscal condition of the state, as evidenced by a $13.5 billion GAAP deficit compared to a $1.9 billion cash-basis surplus. Adopting more rigorous GAAP reporting standards across all state funds is necessary to ensure transparency and prevent the concealment of deficits through rolling cash management tactics.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
More detailed GAAP reporting requirements should be adopted.
The ‘cross walk’ prepared by the Division of the Budget should be accompanied by a detailed explanation of the differences so that postponed commitments and revenue shortfalls are easily identified.
Reporting of year-end results on a GAAP basis should be required on State Funds, State Operating Funds, and All Funds for each of the out-years included in the financial plan.
Key Data
$13.5 billion
— The deficit the State ran on a GAAP basis according to the Annual Financial Report of the State Comptroller.
$1.9 billion
— The positive year-end balance shown in the State's cash report for the same period.
New York City should maintain its commitment to Generally Accepted Accounting Principles (GAAP) by ensuring that any requested deferrals for new standards like GASB 49 are strictly temporary and limited to one year. The City must avoid picking and choosing accounting rules and instead prioritize necessary remediation expenditures within its standard budget process rather than relying on long-term borrowing.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The Board should make clear on the public record that any deferral of GAAP standards will be temporary.
The Board should make clear that it supports the application of all current GAAP requirements.
Any deferral granted should be as brief as is necessary and practical, specifically for one year.
The City and the FCB should continue to accept the best available standard, the GASB rules, as the basis for defining a balanced budget.
The City should use its budget process to address the difficult tradeoffs among multiple services to taxpayers, and the affected remediation expenditures should be one of the priorities addressed in budget debates.
New York State currently balances its budget on a cash basis, which allows for the manipulation of revenue and expenditure timing and obscures the true alignment of spending with recurring revenue. To improve fiscal transparency and accuracy, the state should instead balance its budget in accordance with Generally Accepted Accounting Principles, a standard it already requires of New York City.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The State should balance its budget in accordance with Generally Accepted Accounting Principles to ensure that spending is accurately matched with recurring revenue.
New York State should transition from a cash-based budget to one balanced according to generally accepted accounting principles (GAAP) to provide a clearer long-term picture of fiscal health. This standard should be applied to the enacted budget and mandated through a constitutional requirement to ensure spending is properly matched with recurring revenue.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The Legislature should start by balancing this year’s enacted budget on a GAAP basis, but a requirement should be written into the Constitution.
New York State's fiscal practices are hampered by structural imbalances, a lack of transparency, and a failure to adhere to standard accounting practices. Implementing reforms such as requiring budgets to be balanced according to generally accepted accounting principles and establishing independent oversight could help restore fiscal discipline and stability.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
Require that the adopted budget be balanced in accord with generally accepted accounting principles.
Require a four-year financial plan with quarterly modifications.
Replace the constitutional requirement for voter approval of general obligation debt with a constitutional limit on the amount of all state debt that is set based on relevant, changing economic factors.
Create a professional, non-partisan Legislative Budget Office to provide fiscal information to both houses of the Legislature and to the public.
Require that independently prepared revenue projections be used in the adopted budget, if the Governor and Legislature do not agree on revenue projections in a timely way.
Require a “rainy day” fund larger than the current Tax Stabilization Reserve Fund.
Eliminate the use of “off-budget” accounts.
Change the budget calendar to allow more time for deliberation on the Executive Budget by the Legislature.
Strengthen the committee process of the State Legislature to allow more participation by members in budgetary decisions.
Key Data
$914 Million
— Annual general fund surplus in fiscal year 1993-94, calculated in accordance with generally accepted accounting principles.
($1,882) Million
— Accumulated general fund deficit in fiscal year 1993-94, calculated in accordance with generally accepted accounting principles.
($4,222) Million
— Annual general fund deficit in fiscal year 2002-03, calculated in accordance with generally accepted accounting principles.
($3,320) Million
— Accumulated general fund deficit in fiscal year 2002-03, calculated in accordance with generally accepted accounting principles.
New York State faces a recurring fiscal crisis characterized by structural deficits and a reliance on short-term borrowing and one-shot accounting measures. To achieve long-term stability, the state must transition to budgeting based on Generally Accepted Accounting Principles (GAAP) and implement a multi-year plan that prioritizes expenditure reductions over debt accumulation.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
The State should be required to balance its budget based on Generally Accepted Accounting Principles (GAAP) in order to prevent the accumulation of a deficit.
The Division of Budget should be required to prepare a four-year financial plan with quarterly updates to improve transparency.
All off-budget accounts should be brought on budget to ensure a unified statement of all planned revenues and expenditures.
New York State should levy a temporary tax surcharge that would be phased out over three years to avoid long-term borrowing.
The State should implement a multi-year plan to bring its expenditures in line with its recurring revenues through productivity improvements and service cuts.
Key Data
$2.9 billion
— Projected General Fund deficit for fiscal year 2004-05 using Generally Accepted Accounting Principles.
$4.4 billion
— Projected General Fund deficit for fiscal year 2005-06 using Generally Accepted Accounting Principles.
$37.7 billion
— State-supported debt level in fiscal year 2001-02.
$41.0 billion
— Projected state-supported debt level at the end of fiscal year 2003-04.
New York State's budget process requires significant reform, including the transition from a cash-based financial plan to one managed on a GAAP basis. Implementing these changes is essential to improve budget transparency and address the uncertainty caused by late, bare-bones budget enactments.
Recommendations related to Generally Accepted Accounting Principles (GAAP)
State leaders should prioritize important budget reforms, such as managing the financial plan on a GAAP rather than cash basis.
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