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Topic in Government Accounting: Selling Assets to Yourself t

            Selling Assets to Yourself to Balance the Budget.
             Fund accounting and the modified accrual basis of accounting are the methods used in accounting for government operations. While they are very useful in that they more accurately reflect how governments function, they also can be used to facilitate some very unorthodox financing schemes.
             Governments use the modified accrual method in accounting for revenues and expenditures. That is to say that they use a near cash basis of accounting that treats most cash inflows as if they were the equivalent of revenues. In addition in the interest of inter-period equity these revenues and expenditures must balance in each fiscal year. Fund accounting exacerbates the problem by allowing governments to transfer resources between funds, while treating them as revenues. Governments have taken advantage of these accounting peculiarities to develop some very creative means of balancing their budgets that at best accomplishes nothing and at worst succeeds in deferring the problem to future generations of taxpayers (with interest added of course). One such method was the sale and leaseback of assets, not to some private company where the inflow of funds would be real, but to another government agency - in effect selling something to yourself and declaring income from the sale.
             Faced with a $1.08 billion deficit, on April 1, 1991 Governor Cuomo announced that the State of New York had sold Attica Prison to the Urban Development Corporation (UDC) for $200 million. The agency then sold $240 million in 30 year bonds to finance the purchase. Over the course of the 30 years the agency will have to re-pay $490 million in interest and principal on those bonds. The state in turn leased the prison back from its agency at a cost equivalent to the principal and interest payments on the debt. And the sale of Attica was not the only such transaction in 1991. In that year the state recorded $1.


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