March 08 2019
Truth in Accounting, a government watchdog group, is objecting to a proposed overhaul by the Governmental Accounting Standards Board in the financial reporting model for state and local governments and voiced its displeasure at a GASB hearing this week.
GASB issued a Preliminary Views on Project No. 3-25 last September with the goal of improving some important components of its financial reporting model. The project could potentially shape the future of government accounting standards. The group contends, though, that the proposed changes would be incomplete and misleading because they wouldn’t include a state’s largest expense on the balance sheet: compensation costs for pension and other retirement benefits.
GASB invited the public to comment on the proposed standards, and Truth In Accounting CEO Sheila Weinberg testified at a GASB hearing Tuesday in Chicago. “As a concerned citizen and a taxpayer in Illinois, a state with mounting financial issues, I believe it is imperative that GASB take the lead and shine a light on the long-term costs that are often obscured from public view,” she said. “While I believe one of the proposals in the preliminary views document, the ‘Statement of Short-Term Financial Resources Flows,’ is valuable and a step in the right direction, it will be incomplete and misleading without a full-accrual approach. As it stands, this proposal would not paint a complete picture of a state’s general fund finances because it does not include the largest expenses: the compensation costs associated with pension and other post-employment benefits. Without knowing the full scope of these costs and accruing long-term liabilities, it’s impossible to determine whether a state’s general fund is balanced without pushing current costs onto future taxpayers. Such accounting makes it impossible for me to hold my elected officials accountable.”
Weinberg contends the proposal would be misleading about the true costs of pensions and retiree health care benefits. “It also allows legislators to validate a budget that includes loan proceeds as revenue and excludes costs that weren’t paid in the respective year,” she said at the hearing. “With incomplete and misleading information, policymakers will continue to make ill-advised financial decisions that have major repercussions for those who ultimately will be responsible for the bill when it comes due: the taxpayers, including future generations of taxpayers. I strongly believe that in addition to the ‘Statement of Short-Term Financial Resources Flows,’ a general fund balance sheet and income statement prepared on a full accrual basis are essential.”
Weinberg later explained her position to Accounting Today. “We’ve testified before this board in the past, and in 2015 they started putting net pension liability on government balance sheets, and the financial statements that governments are issuing for 2018 will now include the retiree health care benefits,” she said. “The board has been leaning toward more transparency and accountability, but now what we’re pushing for is to have the budgeted funds be reported more transparently and accurately.”
GASB vice chairman Jeffrey Previdi told Accounting Today that the board has been listening to many different views. “The board has received a lot of input on the financial reporting model project through comment letters and public hearings,” he said. “We encourage all of our stakeholders to share their ideas on the proposals, and will consider their input in future redeliberations on this topic.”
Weinberg hopes GASB will force state and local governments to disclose more of their retiree obligations, even though this could mean budget cuts in other government programs.
“What they’ve done in the past and they’re proposing to continue to do this is to have those fund statements done on a cash basis, looking at it on a short-term basis,” she said. “What we’re proposing is that while you need a short-term cash flow statement, you should do a full accrual, long-term perspective balance sheet and income statement along with this short-term perspective. What’s going on is the governments are used to doing this on a short-term perspective, They budget on a fund basis. They budget their general fund, and then a lot of governments are reporting positive cash balances on their general fund, but that’s because they’re not including their pension debt and retiree health care in those funds. We’re proposing to use, instead of this short-term basis, the longer-term full accrual basis, so citizens know the liability at the funds, especially the general fund. Some argue the consolidated statement shows these liabilities, but what I always point out is that governments unfortunately don’t budget on a government-wide basis. They budget on an individual fund basis, so those fund statements need to show how much pension liability is being incurred and how much they have accumulated to date.”