What is a “Balanced Budget”?
Try this multiple choice test. According to the Comptroller’s Comprehensive Annual Financial Report the City of New York ended its 2010‐11 fiscal year with:
a. a $5 million surplus
b. a $282 million deficit
c. a $9.6 billion deficit
d. all of the above
The answer is: d. all of the above. How can that be? Doesn’t the City, under compulsion of State law, follow the strict standards of Generally Accepted Accounting Principles (GAAP) and balance its budget according to those principles? How can there be multiple versions of what a balanced budget means, and how can two of them indicate the City is running a significant deficit?
The answer to these questions is that multiple versions of a balanced budget standard have arisen because: (a) the State, at the City’s request, has given the City permission to deviate from GAAP in meeting the statutory standard for a balanced budget, and (b) the Governmental Accounting Standards Board (GASB), the body that sets GAAP, has in recent years modified GAAP in ways that set a new and higher benchmark for a balanced budget. The City issues reports disclosing the newly required information, but municipal officials have not adopted it as the basis for defining a balanced budget.