N.J. localities would switch books to GAAP under bill.

A bill pending in the New Jersey Senate would require municipalities to balance their books according to generally accepted accounting principles, but local finance officers and their lobbyists around the state are lining up in opposition.

The bill would expose municipal finance in New Jersey "to the light of day," said state Sen. Dick LaRossa, R-Trenton, chairman of the Senate Urban Policy and Planning Committee, who is sponsoring the legislation.

LaRossa says most towns, villages, and cities in New Jersey do not rely on generally accepted accounting principles, or GAAP, to balance their annual budgets. Because municipalities use "arcane" methods to keep track of their finances, many fail to budget accurately, he said.

Under GAAP, municipalities can count only those revenues that are "known or measurable" during a particular fiscal period.

At the moment, the committee is "digesting" testimony from a public hearing last Thursday and has decided to postpone a vote on the bill until a later date, according to Ralph Morano, a spokesman for state Senate Majority Leader Donald T.DiFrancesco, R-Scotch Plains.

Meanwhile, lobby groups are trying to kill the bill, saying that New Jersey localities cannot afford the costs associated with a switch to GAAP.

At the well-attended hearing held last Thursday, a number of lobby groups representing state municipalities voiced their opposition.

These groups include the New Jersey State League of Municipalities and the New Jersey chapter of the Government Finance Officers Association. "This legislation, if adopted, will have significant economic impact on county and municipal government," the league said in a statement.

The groups could not specify how much it would cost to convert their present accounting systems over to GAAP. But the groups argue that the costs would be substantial, particularly for small towns that can barely pay for mandates already levied by the state.

Lou Neely, chief financial officer for East Brunswick, N.J., and co-chairman of the League of Municipalities' taxation and finance committee, said New Jersey is already recognized as one of the most conservative states for regulation and fiscal control.

"New Jersey paper is received very well in the capital marketplace," Neely said. "If that were not the case, and there was not adequate financial disclosure, it would be obvious because municipalities would be unable to access the Wall Street markets."

For his part, LaRossa said the unfunded mandate concern "is a big red herring," and that the cost of conversion to GAAP would be marginal.

LaRossa also said municipal bondholders would be better able to read New Jersey financial statements if all municipalities conformed to GAAP, a single accounting system that provides a thorough examination of a municipality's finances.

Richard Marino, director of the eastern regional ratings group at Standard & Poor's Corp., acknowledged in an interview yesterday that municipalities across the country are reluctant to adopt GAAP accounting because of the transition costs required.

"To go to GAAP accounting would cost more," Marino said. But, he added, "we prefer GAAP accounting and always have" because it is a uniform system understood nationwide and simpler than the New Jersey double-entry method.

Like Standard & Poor's, the Governmental Accounting Standards Board supports conversion to the GAAP system for municipalities nationwide.

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