Tuesday, May 31, 2011

Other People's Money: States Use Unclaimed Property and Accounting "Tricks" To Balance Budgets

The San Antonio Express had a relatively run of the mill article concerning the Lone Star State's approval of next year's budget.  Many states are struggling to balance (or cutback) their state budgets, and Texas is no exception.  Generally, to balance the budget, state have to either cut services (which is politically unpopular) and/or raise taxes and fees (which is even less popular).  Texas is taking other short-term approaches to address the immediate problems that may cause even more budget difficulty in the long term.

For example, one of the ways that Texas seeks to increase revenue is by "allowing unclaimed property to revert more quickly to the state."  In other words, Texas intends to shorten unclaimed property dormancy periods to take custody of more property more quickly.  In particular, the proposed legislation would shorten the dormancy period for utility deposits from three years to 18 months; money orders from seven years to three years; and bank deposits, savings accounts, and matured certificates of deposits from five years to three years.  The legislation will supposedly raise some $277 million in revenue for FY 2013. 

We saw a similar strategy used earlier this year by New York and last year by Michigan.  Of course, this unclaimed property legislation does nothing to actually increase revenue.  It increases the amount of money brought in this year, but necessarily decreases the amounts brought in for the few years after that.  For example, assuming the legislation passes, four years' worth of money orders will be escheatable at the next reporting deadline.  The year after that, of course, only one year's worth will be due.  Thus, this strategy is a short term fix at best.  Moreover, states can only rely upon shortening the dormancy period a few times.  Soon, there will be nothing left to cut, unless states decide simply to require all property be paid directly to the state.

On the other hand, perhaps these states believe that the Mayans were right, and that they won't have to worry about next year's budget.

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