Wisconsin State Journal. October 29, 2021.
Editorial: Ditch the accounting tricks at the statehouse
Quick question: If you buy your Christmas gifts with a credit card this December, will you still owe that money in January?
Answer: Of course you will.
Yet when state leaders put together a state budget — spending tens of billions of dollars a year in public money — they often fail to account for future obligations, pretending they don’t exist. That’s because the state uses “cash accounting,” which is like balancing your checkbook without considering the charges you put on your credit card.
For decades, this irresponsible practice has led to deeper and more difficult budget deficits whenever the economy has slowed. For example, state officials cut aid to K-12 schools by more than $700 million in the face of a $3 billion deficit following the Great Recession of 2008.
If the state accounted for its money more responsibly — using the generally accepted accounting principles that most businesses, school districts and municipalities follow — it would be less likely to face such dire shortfalls. That’s because its budget would truly be balanced and better able to withstand hard times.
Now is the time — with the state sitting on a large budget surplus — to finally adopt generally accepted accounting principles, as other states have. The Department of Administration this month reported a positive balance of $2.58 billion when the state finished its budget year June 30. That’s more than double the previous year’s balance.
The DOA figures were calculated using cash accounting. So the true surplus is likely smaller than that, but still substantial. A precise estimate won’t be available until December, when the state must calculate a single annual report for creditors using generally accepted accounting principles.
The last time the state calculated its finances using generally accepted accounting principles was last December, when it showed a positive balance of $1.5 million as of June 30, 2020. That was the first time in more than three decades that the state’s Comprehensive Annual Financial Report found a surplus.
That positive balance has only grown larger over the last year, making it easier to switch to higher accounting standards now because more money is available to balance the budget in an honest way.
Sen. Howard Marklein, R-Spring Green, an accountant who has pushed the state to adopt generally accepted accounting principles for the last decade, said Wednesday he will introduce a constitutional amendment soon to require the higher standards for tracking state money. A similar proposal cleared the state Assembly with bipartisan support back in 2012, thanks to Marklein’s leadership when he as an assemblyman. But the measure failed to advance in the Senate.
This time around, three accountants are now serving as Republican senators — Marklein, Dale Kooyenga of Brookfield, and Chris Kapenga of Delafield. With them as powerful advocates, this good-government proposal stands a much better chance of reaching the governor’s desk.
Democratic Gov. Tony Evers has said in the past that generally accepted accounting principles were “something to work toward.” Now that the state is running a surplus, the governor should champion better budgeting practices.
Marklein highlighted some progress this week. He noted that the latest state budget responsibly reversed one of the state’s most glaring and long-standing accounting tricks. The state’s final $75 million aid payment to schools had been delayed until July so that it wouldn’t be accounted for in the state budget that ended June 30. The governor and the budget committee that Marklein leads pulled that payment back into June so it would be properly accounted for.
Generally accepted accounting principles would similarly force the state to acknowledge and plan for all of its obligations, creating more financial security to guard against recessions and unforeseen calamities. Taxpayers also could be more confident that lawmakers weren’t playing games with their money.
The state’s large budget surplus has created the perfect opportunity to get this done. Evers, Marklein and other state leaders should insist on the accuracy and honesty that generally accepted accounting principles will provide.
Kenosha News. October 31, 2021.
Editorial: Drug bust points finger at PPP loan program
The headline last week read: “Three in drug bust received PPP loans.”
The story reported how three of the men and women who were among 15 arrested for alleged cocaine dealing last Wednesday had been approved to receive a total of at least $80,328 in loans through the Paycheck Protection Program, the federal loan forgiveness program to help small businesses cope with the COVID-19 pandemic. About half that money had been paid out, while the rest has not yet been disbursed.
The cocaine charges will, of course, have to be sorted out in court. But the arrests also raise suspicions over whether the federal loans were used to finance illegal drug activity. Suspicions, mind you — those dots have not yet been connected.
We would hope the Small Business Administration, which is in charge of administering the PPP program, and the U.S. Attorney’s Office, which prosecutes fraud, are looking at connecting those dots.
We would like to say we were outraged at the arrests and the suspicions they raised, but, in truth, we were not even surprised.
The simple fact is that the PPP program has been rife with lax oversight and allegations of fraud for more than a year. That’s what happens when the federal government places immediacy over financial checking and begins shoveling billions of dollars out the door.
In March, 2020, Congress passed legislation establishing PPP with an initial allocation of $349 billion in funding — which later grew to $800 billion — to help small businesses and non-profit organizations survive the coronavirus crisis by providing forgivable loans to cover payroll, rent and utility payments.
According to a Pro Publica report earlier this year, “At first, encouraged by the Treasury Department, traditional banks prioritized their own customers — an efficient way to process applications with little fraud risk, since the borrowers’ information was already on file. But that left millions of the smallest businesses, including independent contractors, out to dry. They turned instead to a collection of online lenders that have sprung up offering short term loans to businesses.”
They’re called Fin-Techs — online financial technology lenders — and they proliferated under the PPP program — lured by the government’s allowance of 5% of each loan it made. With automated platforms and perfunctory reviews, the Fin-Techs were motivated to process as many loans as possible.
The New York Times reported this summer on an academic study that concluded Fin-Techs made around 29% of the PPP loans, but accounted for more than half of its suspicious loans. The researchers found that around 1.8 million of the PPP’s 11.8 million loans — more than 15% — totaling $76 billion had at least one indication of potential fraud.
That echoed an earlier report last spring by Pro Publica, a non-profit newsroom, that found one such online lender, Kabbage, Inc., (which was one of the lenders in the Racine loans) sent 378 pandemic loans worth $7 million to fake companies — mostly farms. “One entity categorized as a cattle ranch, “Beefy King,” was registered in PPP records to the home address of Joe Mancini, the mayor of Long Beach Township (along the New Jersey shore),” Pro Publica reported.
“There’s no farming here: We’re a sandbar for Christ’s sake,” Mancini said. The mayor said he had no cows at his home, just three dogs. The investigative journalism center said other apparently bogus farms that got PPP loans included potato farms in Palm Beach and orange groves in Minnesota.
That reporting, in part, led U.S. Rep. James Clyburn, D-S.C., chairman of the Select Subcommittee on the Coronavirus Crisis, to send letters to Kabbage, Inc. and three other Fin-Techs, seeking documents and information on their loan handling.
“I am deeply troubled by recent reports alleging that financial technology lenders and their bank partners failed to adequately screen PPP loan applications for fraud,” Clyburn wrote, “This failure may have led to millions of dollars in Fin-Tech facilitated PPP loans being made to fraudulent, non-existent, or otherwise ineligible businesses.”
So, no, we wouldn’t be surprised if some of those government millions ended up financially supporting a local cottage industry like cocaine dealing. Now we’ll have to wait and see if they can connect the dots.
Eau Claire Leader Telegram. November 2, 2021.
Editorial: Creative compassion behind school board’s decision
The Eau Claire school board’s move toward granting employees up to 10 additional paid days off for COVID quarantines makes sense and should help people escape what could otherwise be an unavoidable financial hardship.
The policy would be retroactive to July 1 and remain in place through the end of next June. The days only come into play if an employee or an employee’s child is required to quarantine due to COVID exposure or if they test positive. A vote is expected later this month.
In normal circumstance we might be skeptical of a move like this. This is, after all, what sick days are for, and the district already provides for those. The difference here is that a quarantine may not actually mean the person is sick. It’s a preventive measure designed to slow or stop transmission of a disease.
So, what’s the difference between this and, say, the flu? To start with the obvious, there’s not usually much of an effort to track the spread of the flu. There’s simply flu season and, in many years, it’s widespread enough that it’s almost impossible to tell where someone got it from. There’s considerably more effort being put into tracing COVID cases and contacts, which makes sense given the virus has shown to have lethality well in excess of influenza.
That last point isn’t debatable, by the way. The Centers for Disease Control estimates there have been 359,000 influenza deaths in the U.S. since the 2010 flu season began. There have been more than 700,000 COVID deaths in less than two years.
The fundamental concept of sick days is to hold employees financially harmless when they are unable to work due to something beyond their control. Those are the same terms in which Phil Lyons couched his support for this move.
“If you’re quarantined, it’s a requirement. Nothing the employee did caused this, and yet they’re required to stay home, so (they) shouldn’t be using, in my opinion, sick time and/or vacation time for something that’s really outside their control,” Lyons said.
It’s fair to ask why the school district is doing this when comparatively few other businesses are. But we think that can fairly be answered by the fact most businesses don’t invite thousands of people from the general public into their doors for extended stays each day. Public schools, by their very definition, do just that.
The school board’s probable approval of COVID days for employees comes as the number of people in their buildings eligible for vaccination is set to skyrocket. Young children under age 12 were the last large segment of the population ineligible for a COVID vaccine. Now that the studies showing the vaccines are safe and effective for children over the age of 5 are coming in, the Food and Drug Administration is acting. The Pfizer vaccine has received authorization, and the others will likely follow soon.
It’s worth reminding people that the vaccines, while unable to prevent every single case of COVID, remain the single best option for avoiding serious complications. In Wisconsin, children under age 18 were the single most affected group in the latest wave of the virus. The difference was so stark, in fact, that the cohort went from having the fewest cumulative cases in the state in August to the second most today. That age bracket trails only adults ages 25-34 in the total number of cases, according to the Wisconsin Department of Health Services.
While we’re clearly in a different phase of the pandemic than we were a year ago, it hasn’t yet ended. Until that happens, we’ll need to make adjustments, and the school district’s actions fall squarely into that category.
A final decision by the district is expected later this month, at the Nov. 15 meeting. But the formal vote will most likely confirm what board members have already signaled. We wish such an act was no longer necessary, but we’re not there yet. And, until we are, creative compassion in handling the pandemic’s twists and turns remains a value to be commended.