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State Takes 14 Months to Close 2008-09 Budget Books

Tennessee normally spends about seven months closing out each budget year, but officials say a string of glitches implementing a new accounting system knocked the state off schedule.

State agencies ended up taking twice the time they normally do to close out the 2008-09 budget year — and Comptroller Justin Wilson said he’s worried the next round of financial audits may also face delays.

“That’s a matter of some concern to me,” he told TNReport.

As of this month, the state has officially finished all audits and paperwork associated with closing up the budget books. The process, which was supposed to be completed by March, lasted 14 months.

Not only do late audits send red flags to Washington administrators keeping an eye on the state’s federal spending, but they also force the Legislature to make decisions based on what could be inaccurate financial reports, said Senate Republican Leader Mark Norris.

This year, said Norris, “we held our nose and passed our budget without it.”

“The bad news is it’s of little use to us now,” he said, adding that lawmakers had to “fly blind” because they didn’t, with certainty, know how much money was in the state’s reserves.

This month, Wilson completed the final two documents required to finish out the budget year, an exercise that was supposed to have been competed in March.

One piece examines state government from top to bottom and is called the Tennessee Comprehensive Annual Financial Report, CAFR. The other, called the Single Audit Report, addresses how the state handles federal money.

Washington officials expected the Single Audit document in March. When they hadn’t received it in May, the U.S. Department of Education sent a letter warning Tennessee that it may withhold payment for fees and claims if the state fails to turn an audit.

According to the Department of Finance and Administration the federal government never went through with that threat.

The budget year began on July 1, 2008 and ended on July 30, 2009. The state’s finance department normally would have closed the books by Dec, 31, 2009, giving the comptroller’s office until March of 2010 to audit the budget records.

Wilson said he doesn’t know whether the state can realistically get back on schedule this year when closing the books for the 2009-10 budget year.

Norris says he’s not surprised.

“That’s sort of the domino effect. They were seven months behind on this and now it puts them further behind in closing last year’s books,” he said.

The Collierville Republican, who blamed Democratic Gov. Phil Bredesen’s administration for the delays, said he worries that the state’s delinquency status could cause a drop in the state’s bond rating or force the state to reconsider issuing some federal funds.

Department of Finance and Administration Commissioner David Goetz told TNReport in July that the bonding authorities were all up to speed on the state’s problems with its accounting system and said he didn’t expect them to lower Tennessee’s rating.

Goetz, the governor’s budget director, agreed that the new Edison accounting system may have given the state trouble.

“However, problems we experienced over the past year have led to improvements in operations,” he wrote in a letter to Wilson (pdf). “We have established an aggressive schedule to complete the CAFR for FY10 by Dec. 31, 2010. If successful, that would return the closing process to its normal schedule.”

“The Edison system replaces more than 20 major outdated and inflexible legacy systems that were 15- to 30-years old,” he added.

But Wilson said more work needs to be done.

“The ultimate success or failure of Edison depends upon the extent to which the agencies accept and utilize the advantages and recognize the pitfalls of the system,” he said in his own eight-page letter, adding that the state needs to learn from the experience to prevent the large changes from crippling state government.

Press Releases

School Bond Authority OKs $212m in Construction Loans

State of Tennessee Press Release; Aug. 2, 2010:

The Tennessee State School Bond Authority (TSSBA) gave its approval Friday to approximately $212 million worth of school construction loans for 15 school districts. The loan funds, which are being made available through the state’s Qualified School Construction Bond program, will be used to build, renovate and repair schools in those districts.

Money from the program can only be used for new construction, rehabilitation or repair of public school facilities; land acquisition for qualified school construction projects or purchase of equipment used in connection with qualified projects.

The school systems and loan amounts approved Friday were:

Blount County – $15,016,740

Cocke County – $5,634,997

Coffee County – $3,060,000

Dyer County – $5,734,134

Hawkins County – $2,357,669

Jefferson County – $10,710,000

Knox County – $29,584,000

Lauderdale County – $2,550,000

Maury County – $4,959,240

Metro Nashville – $31,156,000

Sevier County – $14,661,423

Shelby County – $67,611,000

Sullivan County – $5,243,055

Trousdale County – $2,550,000

Warren County – $10,710,000

Some of the individual projects within those school districts are still under review to ensure they comply with the program’s guidelines. A final list of projects is expected to be available after the TSSBA approves the loan agreements with the county governments in August.

Of the $212 million, the federal government made a direct allocation of approximately  $85.7 million for various projects in the Knox County School System, Memphis City Schools and Metro Nashville Public Schools.

The bond sale to finance the construction and renovation projects is tentatively scheduled for the week of Sept. 13.

The TSSBA will invest the proceeds from the bond sale in the State Pooled Investment Fund and distribute them to the school districts to cover expenses related to their construction projects. The loans will be repaid at a very low interest rate.

Last year, the TSSBA provided $177 million in Qualified School Construction Bond loans to 13 local governments. Those loans are being repaid over 17 years at an interest rate of 1.515 percent.

The TSSBA members are: Comptroller Justin P. Wilson, Treasurer David H. Lillard Jr., Secretary of State Tre Hargett, Governor Phil Bredesen, Finance and Administration Commissioner David Goetz, Board of Regents Chancellor Charles Manning and acting University of Tennessee President Jan Simek.

“I am very pleased that we are once again able to provide funding for these school districts through the Qualified School Construction Bond program,” Comptroller Wilson said. “In difficult economic times, this is an important source of financing for our state’s schools.”

“The low interest rates available through this program are as good as school districts are likely to find anywhere,” Treasurer Lillard said. “The needs of some of our school districts are substantial. I am glad that this type of financing is available to meet those needs.”

“I commend the General Assembly for creating this program,” Secretary of State Hargett said. “Our legislators recognized the importance of creating a valuable new funding source for our schools.”

Featured News Tax and Budget

State Falling Behind on Bookkeeping Duties

Tennessee begins its next budget cycle today, but state financial officials have yet to fully close the books on the fiscal year that ended last summer.

That isn’t normal, said Comptroller Justin Wilson, Tennessee’s chief auditor of state and local governments.

And the delay could put some of the federal dollars the state is angling for in jeopardy if the situation isn’t rectified soon, he told the Joint Fiscal Review Committee Tuesday in Nashville.

“We are not doing what we’re legally required to do,” said Wilson.

The State of Tennessee is obligated to share an audited budget with the federal government each year. But because the state switched to a new accounting system for closing out the 2008-09 fiscal year, officials said ironing out the final numbers is taking longer than expected.

They’re now five months behind schedule.

“The state hasn’t completed its audit on that last year, and without an audit, the feds deem that to be technically missing,” said Mark Norris, Republican majority leader in the Tennessee Senate. “And If your audits are missing, bad things can happen if you’re a recipient of federal funds.”

Particularly worrisome to Norris is how the delay might affect Tennessee’s bond rating and whether the $501 million in “Race to the Top” education grants might get held up.

“We’ve been told that it’s not a big deal, that it’s not a problem. But it’s become a problem,” said Norris.

Federal officials sent a letter on May 5 to the Tennessee Student Assistance Corporation saying the U.S. Department of Education may “suspend the payment of account maintenance fees, default fees and claims to an entity that does not submit its audit within the required time period.”

TSAC responded three weeks later, saying the audit still wasn’t ready.

“The audit you are requesting is not yet available,” read the letter signed by  TSAC Executive Director Richard Rhoda. “The Comptroller’s office currently anticipates completion of the audit of the state’s financials in July with the single audit to follow thereafter.”

Since then, Department of Finance and Administration Commissioner David Goetz says his department has finished crunching the numbers on that budget cycle. The department forwarded the documents to the Comptroller’s office two weeks ago for further examination.

Goetz also maintained that Tennessee being delinquent in wrapping up the 2008-09 budget year shouldn’t hurt either the state’s bond rating or access to the Race to the Top grant.

“The federal government wants to see that the books are being kept appropriately,” he said. “This is not something we try to hide. There’s no problem here except in just the reconciliation in the processing that we’ve had to do. We’re working our way through those issues.”

Comptroller Wilson said he so far hasn’t heard that Race to the Top dollars will be withheld, “but there are inquires from the federal government to say, ‘Why haven’t you done this?’ It’s an issue.”

The budget year began on July 1, 2008 and ended on June 30, 2009. The finance department normally would have closed the books by December 31, 2009, giving the comptroller’s office until March of 2010 to audit the budget records.

The comprehensive annual financial report should be done in 30 to 45 days, said Wilson.

However, other delays could still pop up, he said.

“It’s like, ‘Tell us what’s in the box,’ and you hadn’t opened the box. We just don’t know,” said Wilson, who added that his department has already discovered reporting errors.

Because officials are still closing out the books on 2008-09, Wilson said he expects the state will ultimately delay wrapping-up the 2009-2010 budget year as well. It ended June 30.

“I do not want to do a sloppy job in order just to get the paper in,” he said.