TxDOT’s $1 billion accounting gaffe explained

During last night’s Texas Republican primary debate,¬†Debra Medina and Kay Bailey Hutchison¬†both mentioned TxDOT’s 2008 accounting error, with both saying that¬†TxDOT lost $1 billion.¬† Sadly, these are people who are running for governor and even they just can’t get basic¬†facts right.¬† Now¬†I realize that for folks running for office and/or wanting to besmirch TxDOT,¬†saying they lost $1 billion is¬†a great talking point.¬† But the anticlimactic fact is this: no money was ever¬†lost.

What happened was this: while laying-out their budget for the year, TxDOT accountants accidentally counted $1 billion in new bond revenues twice.¬† This lead to¬†an “extra” $1 billion in the budget for that year against which a¬†subsequent list of projects was approved¬†to spend that extra money.¬† When the accountants realized what had happened, that $1 billion worth of “extra”¬†projects had to be rescinded.

People who don’t understand what happened¬†think this means TxDOT “lost” or “misplaced” that money.¬† But it’s money that wasn’t there to begin with.¬† Here’s the best analogy I can come up with to explain what happened in layman’s terms:

Imagine you’re planning your own¬†budget for the year.¬† Your income includes 52 paychecks of varying amounts¬†for you and your spouse, rental income on a couple of properties, investment income from several¬†stocks, and income from an online business.¬† Image that you also just got a¬†$10,000 inheritance, which you decide to use to pay-off some debt.¬† While planning your budget, though, you inadvertently¬†include that¬†$10,000 twice in your budget (maybe you added it and then your¬†spouse added it later, not realizing you had already added it.)¬† So you decide to use that “extra” $10,000 to make some improvements to your home that you had been putting off.¬† Then, a few weeks later, you go over your budget again and realize¬†your mistake¬†and now you have to cancel those home improvements because you can no longer afford them.¬† Did you actually lose $10,000?¬† No, you simply counted on money that wasn’t there in the first place.¬† Does that mean you’re incompetent?¬† Well, no, probably not.¬† Your budget consists of a lot of income streams, and this was a new, one-time income source that inadvertently got counted twice and¬†then overlooked¬†due to¬†the complexity of your budget.

This is the same thing that happened to TxDOT.¬† The $1 billion was a new revenue source that year from bond proceeds.¬† TxDOT has a multitude of income streams and budget planners simply counted that new bond revenue twice while forecasting their income for the year.¬† No money was ever “lost” or “misplaced” because it never existed in the first place.¬† The actual $1 billion in bond revenues was fully accounted for and spent on projects.

Hopefully this helps put this misunderstanding to rest once and for all.

FOLLOW-UP: I love it when I’m right

 

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