Accounting and Generational Liabilities
The truth is almost all local government’s use a “cash based” accounting system that tracks cash in and cash out making no allowance for future expenses that we accrue or collect along the way. An example may be building a sports arena but not providing or accounting for the operation and maintenance in the future. In a “cash based” accounting system those future expenses do not exist until they become due.
By allowing governments to hide both their liabilities and the real state of their finances, traditional government financial reporting enables governments to pass off present costs to future generations. Just like the snowballing pensions and retirement benefits, these hidden costs will cripple local government’s ability to provide basic services in the future. The opposite of a cash based accounting system is an “accrual based” accounting system.
Accrual accounting recognizes events and transactions when they occur, regardless of when cash changes hands. If a government promises pension benefits in the current period and must pay retirement claims in future periods, the liability and expense is recorded when the event occurred. When the cash is actually paid, the liability is removed. I will switch to an accrual accounting system to improve accuracy and prevent pushing our current obligations onto our children.
Right now we are fooling the taxpayers. They have no idea of the liabilities facing their children…the snowballing pensions and retirement benefits that will cripple the ability to provide basic services in the future. We must change to an accrual based system where everything is transparent…where the public knows what we owe in the future.
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