Are all late financial reports accidental?
When a city, county or state releases its Comprehensive Annual Financial Report later than usual, the delay is usually for understandable reasons: a new computer system stalls action, say, or a short-staffed government is stymied by the need to revamp financial reporting due to a recently introduced accounting standard.
But sometimes, the motivation for a delayed report may be different. We learned this nearly 25 years ago when we were evaluating the management of city governments in Financial World magazine. We had given a mediocre grade to Chicago, complaining about its late financial reporting. Later we met with that city’s financial officials who told us, off the record at the time, that the delay was purposefully intended to shield information from unions. The financial report was going to reveal a surplus that could have been used by union leaders to get an edge in the then-ongoing contract negotiations. The city’s logic: Why tell the unions the city had more money in its coffers than the unions already knew?
No one in that room probably remembers the conversation (except us), and most are probably off the payrolls (either because they’ve moved, retired or died). So, we feel like a quarter of a century is enough time for us to tell the story without jeopardizing anyone who didn’t want it revealed back then. (Plus, we have no reason to believe that Chicago ever used the same delaying tactic again.)
Still, the revelation of that day resonated back in December, when we read an article in the Half Moon Bay Review in San Mateo County, California. The report focused on a county financial report that was due in October, but wasn’t released until late November, two weeks after Election Day, when a 20-year-extension of a half-cent sales tax increase was approved by voters. In the financial report, the county pointed to its strong economy and rising revenues, including “the sixth straight year that historic highs have been set” on the draw from its property taxes. Would voters have approved the sales tax increase if they knew that property taxes were doing so well? We think that’s a good question.
The issue might have gone unnoticed except that a Civil Grand Jury had complained about the openness of the county’s finances three years before and the foreman of the jury, a retired attorney, was on hand to draw attention to this most recent issue. Said he, “I think it’s problematic and very suspicious . . . It’s problematic when the county does not provide the most current information before an election relating to taxes.”
In fairness, beyond the comments in the article, we have no reason to suspect the county of purposeful delay. In fact, the Half Moon Bay Review credited the county with generally improved financial transparency and the county controller’s office said the delayed report release was due to increased financial reporting requirements for pensions. That’s totally plausible.
Still, the lesson we learned from Chicago long ago, still resonates. When government disclosures are late, it’s probably a good idea to understand exactly why.