Last week Governor Jerry Brown continued his steady stewardship of state finances by proposing a budget for the 2016–17 fiscal year that restrains spending despite hefty projected revenue growth. Brown once again reminded observers that healthy revenues today are likely to turn infirm tomorrow because of the state’s reliance on capital gains and that officials should plan accordingly.
For those of you interested in how accrual basis accounting would change the budget, add at least $11 billion of incurred but unpaid expense to the last fiscal year, which ended June 30, 2015. Because the state utilizes cash basis accounting, that expense does not show up when incurred but rather over time, plus interest, as explained here.
Brown pointed out to observers that another reason for conservative budgeting is the steep growth of future payments required to service the unfunded liabilities that arise from incurred but unpaid expenses. Needless to say, adoption of accrual accounting would make that crystal clear.