With proposed new pension norms, it is the Great GASB, or the late GASB?
Published: July 14th, 2011
Provoking immediate discussion in the world of government pension accounting and funding, the Governmental Accounting Standards Board (GASB) issued two Exposure Drafts just days ago.
If they ever go into effect, the improved reporting standards would lead to important changes in financial reporting of pensions by state and local governments. Proposed revisions would, if ultimately passed through GASB this fall, make much clearer the costs and obligations of pensions provided to public employees. The revisions would amount to important shifts in the way liabilities are calculated and reported.
Several pension analysts in Oklahoma have responded to requests for comment from CapitolBeatOK.
David Blatt of Oklahoma Policy Institute reflected, “Any changes that help improve the transparency and comparability of pension system reporting should be a positive development for policymakers and the public.”
Dr. James Wilbanks, executive director of the Oklahoma Teacher Retirement System (OTRS) said, “Some of my impressions are good, but some are not as good in terms of those of us who actually run a system. I am concerned about problems in the proposed reforms both in that capacity, and as a taxpayer.
“I will say that the move to bring some consistency into the reporting of unfunded liabilities is crucial. There are now six ways to list those. It’s a positive step to pack that down into one. It will assist all of us in bringing consistency from one system to the next.”
He cautioned, however, that in the changes, “there are other issues involved. There is presently an annual required contribution number. That was/is, in fact, a creation of GASB. That’s going away, and that’s troubling. They’re now going to say nothing about funding of systems.
“That change concerns me because I believe we will be losing a very useful number, in fact even a critical number, that guides us as managers and administrators on how much to fund into our systems.
“To be clear, on that issue, GASB is taking the position that they can tell us how to account, how to do our accounting, but not give us guidance on how to pay or how much to pay. That is a big philosophical shift at GASB and it has me concerned.”
Wilbanks runs one of Oklahoma’s most troubled government pension systems, but has guided important reforms and achieved better return on investment, among other improvements.
Asked if the changes taken as a whole were “great” or “late,” Wilbanks chuckled and said, “There’s not a clean answer to that. It implies they should have done something years ago. As I say, there are strengths in these proposals, but I am concerned about what they’re taking away at the same time.”
As a bottom line, Dr. Wilbanks reflected, “these GASB proposals are the start of a healthy debate.”
Another knowledgeable analyst within Oklahoma government , Deputy Auditor & Inspector Steve Tinsley, had comments that were both supportive and critical of the new benchmarks, as proposed.
He told CapitolBeatOK, “The GASB exposure draft on reporting pension liabilities is an issue that GASB has kicked down the road for a couple of decades. It has been a very contentious subject because of the impact it will have on the reported financial conditions of many governments.”
Tinsley observed, “There has been lots of pressure in the past to pretend these obligations were not real liabilities and to not record them. That ‘make believe’ posture will end if GASB does in fact implement the proposal. Given the amount of public awareness to the issue of government debt and over spending, it will be very hard to kick this can down the road again. Bond rating organizations have also become much more interested in seeing the numbers reported, and GASB must meet their needs to remain relevant.”
Tinsley warned bluntly that implementation of the proposals would result in dramatically intensified scrutiny of government pensions. As for Oklahoma, he said, “The impact on the state’s financial position if these pension liabilities were recorded and reported will be huge. Using fiscal 2010 numbers, which are the most current audited numbers, the state reported positive net assets over liabilities of over $13 billion.”
However, “Had the pension liabilities been reported that would have changed to a negative balance of net assets, of more than $3 billion. Given Oklahoma was not unique, it’s not surprising that many governments preferred to kick the can on down the road and pretend the problem wasn’t there. However, the 900-pound gorilla was in the room and would not go away. A day of financial reckoning may have arrived.”
Tinsley works for Auditor & Inspector Gary Jones, a statewide elected official whose duties include service on the state pension commission.
In light of his cautionary words, Tinsley’s other thoughts will be comforting to taxpayers and lawmakers: “With the current changes to the state’s pensions systems this past legislative session, Oklahoma’s situation improves immediately and over a long period of time the liability will mostly work itself out by not making the hole any deeper than it currently is.”
Jonathan Small of the Oklahoma Council of Public Affairs was perhaps most critical of the GASB proposals, albeit from a view that it might be years, even decades, too late.
Small told CapitolBeatOK, “In some ways, GASB is like a slow-reacting government bureaucracy. Their past pronouncements have been more or less advisory, or they were formerly packaged as a half-dozen or so hard-to-read communications in which it was difficult to discern a message.
“Now, they are merely saying more or less what everyone knows. What I mean is that they are advising people to do what is more or less already on the agendas.”
For these reasons, Small concludes, “This is too little, too late. On top of that, they are taking comments until September 30, so this won’t even be the standard until the last quarter of the year.”
Written comments on the proposed standards will be taken until September 30. That deadline is followed by public hearings October 3, 13 and 20, and “user discussion forums” on October 4, 14 and 21.
Detailed information on the proposed improvements in pension reporting are available at the website of the Government Accounting Standards Board (www.gasb.org).