Recently, Moody’s Investors Services announced New Mexico’s finances deteriorated to the point that the state’s credit-worthiness was due for a downgrade. While this is the second bond downgrade in as many years, the good news is the credit rating agency still indicates the state’s obligations are considered to be “upper-medium-grade and are subject to a low credit risk” of default.
Most people view this as a score that indicates the state’s finances, while deteriorating, are still in pretty good shape. The bad news is the credit rating is not an indicator of the financial condition of the state. The credit rating provides information to bond investors about the state’s ability to pay off its bonds when they come due. It is not a grade of the state’s overall finances.
For taxpayers and elected officials to determine the government’s overall finances, state and local governments throughout the country issue a Comprehensive Annual Financial Report (CAFR). The CAFR reports how much the state has in assets and the state’s bills, including its unfunded pension liability. This financial report compares the income the state received in the year to its expenses. In addition, it reports the results of the state’s implemented budget.
To verify the accuracy of the annual financial report, it is audited by an outside certified public accounting firm. For the information to be relevant, most governments issue their report within 180 days of a government’s fiscal year end.
While the state’s latest fiscal year just ended June 30, 2018, Duffy Rodriquez, New Mexico cabinet secretary of Finance and Administration, has not issued the state’s financial report for the previous fiscal year (that ended) June 30, 2017. The 2016 CAFR was not issued until 342 (days) after the fiscal year end.
Tardy documentation robs the public of its right to hold elected officials accountable. Imagine how disruptive it would be if personal credit card statements were only available more than a year after using your card. It would be impossible to make sure that you were living within your means.
In addition to not having timely financial report information, New Mexico taxpayers do not receive reliable financial information. The state’s audit firm, CliftonLarsonAllen LLP, was “not able to obtain sufficient appropriate audit evidence to provide a basis for audit opinion.” In other words, the state didn’t provide the auditors with enough information to determine if the information in the CAFR was accurate. Another way to think of it is the New Mexico CAFR received an “I” for incomplete.
Moody’s and other credit rating agencies provide ratings to protect investors. Since the state is not providing timely and reliable financial information, who is protecting the taxpayers?
Truth in Accounting is a nonprofit organization that researches government financial data and promotes transparency for a better-informed citizenry.