Concerning

Nevada Financial Management is Tier 3

To be clear, I never liked accounting. It’s looking backward at the wake your boat made in the water. I always liked looking ahead.

That’s a core difference between finance and accounting. Finance looks ahead. Accounting tells you where you have been.

Accounting is important because it helps you guide your decisions. If you aren’t making 40% margin on sales and Finance forecasts a 40% margin on future sales, you might wonder how they arrived at that number.

For those of you not familiar with accounting, it is NOT an exact science. Financial Accounting Standards Board (FASB) and Generally Accepted Accounting Principles (GAAP) rule the day, and there is plenty of wiggle room for judgment. That’s why American Airlines books do not look exactly like United Airlines books.

A very close friend of mine is one of the top international tax guys in the world. He practiced at a Big 4 accounting firm and now does it for a very famous international firm. I noticed in their last earnings release how their international tax burden decreased by a large percentage. That’s his judgment and familiarity with FASB/GAAP and international tax.

In government, the principles are similar. Another close friend of mine is very active in the munibond market. He sent me this communique from Fidelity. If you are a Nevada resident, it ought to make you ask some questions.

When you do 40 years in finance, you acquire a lot of friends in a lot of interesting disciplines. You cannot know everything about everything.

Out of the fifty states, Nevada is in the bottom tier when it comes to financial management and reporting. Colloquially, it’s “tier three”. For a small state, it should be tier one.

Nevada is the slowest state to release an audit.

While California is making progress on its audited comprehensive financial reports, and another poster child for late audits, Illinois, is also showing improvement, Nevada has cemented its position as the slowest state at issuing audited financial statements.

The Silver State has yet to release its ACFR for fiscal 2024.

Cutting some slack, the Controller’s office was a mess when it changed hands four years ago. It took a couple of years to right the ship. A Democratic legislature will always slow down an audit as well, combined with the inertia of government, which never wants to change direction.

But you cannot talk about “DOGE” and state finances if you don’t have a current audit. It’s impossible. It’s pissing into the wind. It’s not the kind of pro-finance management that allows ratings agencies to think about improving credit ratings.

People still have a desire to purchase Nevada debt because the economy is growing. That’s evident by job growth and population growth. Side question: Another guy I know in the munibond business wonders why Nevada never issues variable debt. But I digress.

However, it’s harder to issue any debt without a current audit. Markets like transparency, and audits make things transparent. It’s even harder to issue debt when the Treasurer doesn’t understand finance. It gets outsourced, and that costs taxpayers millions of dollars in total. You see, the gatekeepers charge juice. Juice is expensive, and so are haircuts. Nevada has been paying for the last 8 years, and it will be the case going forward.

It’s another reason why both the Controller’s office and the Treasurer’s office should be led by people with financial backgrounds, no matter which political party they come from.