WASHINGTON - The U.S. Treasury recently said it will study, but not necessarily change, new regulations governing the $150 billion annual flow of federal funds to states that a state accountants group says will cause hardship.
The National Association of State Auditors, Comptrollers, and Treasurers recently said the new regulations "will work undue hardship on the states," primarily because they eliminate the routine use of reimbursable funding, a practice under which states first pay for federally funded programs and then bill the federal government for the cost.
The rules, which primarily dictate who will receive the interest earned on federal funds, are designed to discourage states from drawing funds before actually spending the money and to prevent federal agencies from sitting on funds that states are entitled to receive.
State officials also charge that the new rules could allow the federal government to escape paying interest to the states on the funds, but that states routinely may have to pay interest to the federal government.
In a recent written response to the group, the Treasury said it will stick to its current plan, which includes carrying out the regulations but also studying their impact on states during the first year.
"If an additional rule-making were to occur, it would not take place until [the Treasury] has had a chance to carefully evaluate the issue following at least six months of [regulation] implementation," the Treasury response said.
However, state officials complain that eliminating reimbursable funding will be very difficult and costly for some states that rely heavily on that system of accounting.
"Some states will be put in a very difficult position if this [provision of the regulations] is not changed," said Helena Sims, director of the Washington, D.C., office of the accountants' group.
Mandated by the Cash Management Improvement Act of 1990, the rules are designed to improve the efficiency and fairness of the transfer of funds from federal agencies to states.
The state accountants' group contends that by eliminating reimbursable funding, the new regulations violate the spirit of the new law. They say the new law calls for minimal disruption to current state accounting systems.
But Treasury officials disagree with the group's assessment. "The elimination of reimbursable funding promotes efficiency, effectiveness, and equity in the exchange of funds between the federal government and the states," the Treasury response says.
Treasury officials were unavailable for direct comment.
In its written response, the Treasury noted that states can continue using reimbursable funding after the regulations eliminate its use on June 30, 1994. But states would have to forfeit any interest they might otherwise receive for the funds involved.
"[States] may continue to receive their program funds as reimbursables. However, the state will not receive interest because they are not using an approved funding technique," the Treasury's response says.
Technically, the new regulations went into effect on Oct. 24. However, Congress passed a bill before adjourning for the year that would postpone the effective date of regulations until July 1, 1993, or the beginning of a state's next fiscal year starting in 1993, whichever comes later.
As of yesterday afternoon, President Bush had taken no action on the bill. The White House received the bill yesterday and the deadline for Bush to sign the bill is Nov. 16. State officials say Bush is likely to sign the bill.