Anson Stevens-Bollen
W hat happens when your bank statement doesn’t match how much you think you have in the bank? What if there’s less in there than you thought? Would you let that problem sit for eight years?
Some say that's what's happening with New Mexico state government.
While Legislative headlines focus on a projected state surplus this year that keeps shrinking because of shaky oil and gas revenue, that might only be the beginning of long-term budget problems.
Last year, the state was the last in the nation to release its Comprehensive Annual Financial Report. This year, New Mexico is on track to repeat that lackluster performance, according to Bill Bergman, director of research at the Chicago-based watchdog group Truth in Accounting.
Bergman argues that a timely release of the report is important because the document known as the CAFR is the most accurate description of the state's financial condition and is "critical for securing accountability for government to its citizens."
The state's CAFR for the fiscal year ending in June of 2013 wasn't released publicly until last fall, more than a year after the fiscal year ended. Bergman contends that the longer a state's financial data isn't made public, the more likely a state is to take financial risks with taxpayer money.
But perhaps the bigger problem is what the most recently released CAFR revealed. State Auditor Tim Keller explains the issue with an analogy.
"You've got your checkbook and the amount you have in the bank," Keller says. "For the state of New Mexico, those don't match."
The Department of Finance and Administration, which is the state agency charged with compiling the CAFR, didn't actually audit the report until late in 2014. It's unclear why this took so long—multiple calls to the department secretary Tom Clifford's office went unreturned for this story.
Balances in the state's reserves, which current include more than $500 million in several funds, have been overstated. Keller says the cummulative estimate of the value of those mistakes ranges between $70 million and $460 million since the problem began.
The department's contract auditor also issued a "disclaimer of opinion" on the 2013 CAFR, meaning that its financials were too poor for even a comment from the auditor. New Mexico was the only state to receive such a designation.
"The accounting problems and controls are so poor that the auditor cannot express an opinion," Bergman says.
None of this bodes well for New Mexico's reserves, which essentially act as a savings account for the state. These are separate from the funds used to write the yearly state budget, which is mostly a plan for spending gross receipt taxes and oil and gas revenue. Because of the volatile nature of this funding source, which can go bust in bad economic times, the state tries to keep a healthy amount of reserves each year for a backup fund.
"That's why it's important for us to have high reserves," says Charles Sallee, a deputy director with the Legislative Finance Committee. "Anything that impacts those reserves is troubling."
Not being able to balance the checkbook can also affect the state's credit rating, which currently sits at a triple-A score, the highest available.
"The credit rating is important when we sell bonds," says state Treasurer Tim Eichenberg. "It reduces the interest we pay."
What's also problematic is that after the CAFR was finally released for 2013, the rating service Standard & Poor's changed the state's outlook to "negative." That means if the virtual checkbook is not reconciled in the near future, New Mexico's credit rating could plummet.
Insiders say the root of the unaccounted-for money dates back to state government's glitchy implementation of an online accounting system in 2007 called SHARE.
The switchover to SHARE led to a plethora of problems, including constant financial misstatements and unaccounted-for federal dollars in the state's coffers. It appears the figures that went into the system as a starting point were inaccurate. What's worse, to this day, certain modules and components of the accounting software have never been purchased or installed into the state's program, leaving SHARE incomplete.
Because all the state agencies have been using the accounting software for nearly eight years, Keller says none of them can be effectively blamed as a scapegoat for the bigger issue.
"These are millions and millions of entries," he says. "That's why the problem is so complicated."
More recently, the state Department of Finance and Administration estimated the number of unaccounted-for dollars in the state's reserve at $101 million—another way of saying that the state has $101 million less to work with than originally thought.
The significance isn't lost on Keller, who was sworn in as auditor this year and now explains that balancing the state's checkbooks can't be dismissed as simply an accounting issue.
"Those are real dollars," he says. "If we did not have to do that, we would have double the surplus—another $100 million to spend on roads, bridges, schools and health care."
But the true number of unaccounted-for money in the reserves still isn't known. In a memo written to lawmakers last month, the Legislative Finance Committee deemed that "further research is necessary to determine the actual adjustment needed to the state's general ledger."
"Until historical cash variances dating back to [fiscal year 2007] are resolved, DFA will not be able to effectively reconcile cash on monthly basis," the memo reads, "as stipulated by statute."
