Friday, January 11, 2002

As the scent of Enron grows ever more pungent, it's fun to watch the ripples spread. For instance, take their accountants. Last year, at about this time, the former consulting branch of the Arthur Andersen firm rebranded itself Accenture, as part of a messy divorce with the accountants in which the accountants got to keep the name. But after the revelation that the accountants destroyed documents related to Enron, in the wake of fraudulent Andersen audits of Sunbeam and Waste Management, the consultants are probably toasting the divorce and their former bad luck.

Meanwhile, Paul Krugman reminds us that Enron wasn't the only large organization in Texas that indulged in questionable accounting practices:

For example, in 1999 the governor of Texas --- yes, him --- justified new corporate tax breaks with a budget that not only understated Medicaid costs by $550 million but hid regular payments for nursing care and other services by moving them from the last month of fiscal 2001 to the first month of 2002.

This was part of a pattern of state tax cuts (many pushed through by Republican governors) in the boom of the late '90s, many of which were based on similar tricks --- Republican Governor James Gilmore of Virginia, for instance, booked the value of all future payments in the tobacco settlement as current revenue.

The states are now feeling the squeeze, since they're heading into deficits, and, in most cases, their constitutions won't let them borrow to cover.

That's as opposed to funny-money tax cuts at the federal level, where borrowing is allowed and the squeeze can compound for quite some time.


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