California’s Missing Financial Report
Each year, every state is required to issue a Comprehensive Annual Financial Report (CAFR) which is a snapshot of state financial health for a given fiscal year. Most states (with the exceptions of Alabama, Michigan, New York, and Texas) have a fiscal year that goes from July 1 of the calendar year to June 30 of the next calendar year.
This year, California is the only state to not release a CAFR for FY 2019 , which covers the latter half of calendar year 2018 and the first half of calendar year 2019. This means that taxpayers and state leaders are being kept in the dark about the financial health of California.
The CAFR contains information about tax revenue and state budgets, as well as important information on pensions, other postemployment benefits (OPEB) and bonded obligations.
Even states that have been hit hardest by COVID-19 have still been able to issue their financial reports on time. California State Senator John Moorlach said, “You can’t blame COVID-19 when the other 49 states, including New York, have issued their CAFRs.”
The Government Financial Officers Association (GFOA) requires that states submit their CAFRs no later than six months after the end of their fiscal year, but there is no punishment for publishing a CAFR late. That is because the GFOA is a private association and does not have authority to enforce its deadlines.
In past years, California has published the previous fiscal year CAFR sometime around April 1, but the state has delayed publishing its report for two years in a row.
Last year, California issued their CAFR on June 3, 2019 (333 days after FY 2018 ended). The only state that was later than California was Illinois, which issued their CAFR just after Labor Day 2019 (425 days after FY 2018 ended).
In March 2020, State Controller Betty Yee notified bond investors that the CAFR would be delayed until June. Now in late August, California has yet to publish their CAFR.
While the Governmental Accounting Standards Board (GASB) has no deadline for states to submit their CAFRs, GASB does emphasize timeliness of financial reporting. Paragraph 66 of GASB Statement No. 1 states:
“If financial reports are to be useful, they must be issued soon enough after the reported events to affect decisions. Timeliness alone does not make information useful, but the passage of time usually diminishes the usefulness that the information otherwise would have had. In some instances, timeliness may be so essential that it may require sacrificing a certain amount of precision or detail. Sometimes a timely estimate is more useful than precise information that takes a long time to produce.” (Emphasis added).
Just like the GFOA, GASB is not able to punish states that do not report their financial statements on time. GASB is a private sector organization that establishes accounting and financial reporting standards for U.S. state and local governments but does not have authority to enforce its standards.
With a total debt burden exceeding $1 trillion, California cannot afford to keep its taxpayers and state leaders in the dark any longer. California currently has the largest unfunded pension liabilities ($780 billion), the largest unfunded OPEB liabilities ($166 billion), and the largest total bonded obligations ($212 billion) in country. If taxpayers and state leaders are not able to get this information in a timely manner, they cannot make fully informed decisions about the future of the Golden State.