PERSPECTIVE - What if local and state governments had to carry unfunded pension liabilities on their balance sheets? Uh, I should say, our balance sheets.
That could ultimately amount to billions of dollars less in equity for the City of Los Angeles.
The iconic capitalist of feature films Gordon Gekko said “Greed, for lack of a better word, is good.”
My mantra is “Disclosure, because nothing else matters, is good.”
That’s why I am elated by the prospects of new pension accounting standards under consideration by Governmental Accounting Standards Board (GASB) which would force governments to report unfunded pension liabilities as they would debt obligations.
I sometimes refer to GASB as the Generous Accounting Standards Board because of the way it allows their adherents to play it fast and loose with financial reporting. GASB, with respect to pension accounting, has fostered the equivalent of white-collar crime by ignoring the impact pension obligations have on the taxpayers – that’s us.
If a publicly traded company ignored its true pension liability, shareholders would be lining up to sue and the Department of Justice would indict the senior executives for fraud.
But here in Los Angeles, and in many cities, counties and states, people like the mayor and Controller Wendy Greuel hide behind a veil that allows them to underreport a potentially huge long-term debt.
They don’t give a damn because they would rather not face up to the public union leaders whose support is critical to their careers.
As a result, balanced budgets are not really balanced because the ever-accumulating costs of public pension plans do not have to be considered. Out of sight; out of mind prevails. It’s as if you could ignore your potential long-term healthcare costs when preparing a personal financial plan.
My enthusiasm over the proposed changes is tempered. GASB is not proposing standards for estimating a return rate on pension fund assets, which means LACERS and LAFPP can continue to assume a return of 8% forever for most of the assets. However, they would be forced to use a much more conservative rate for unfunded benefits. This will result in a larger liability than the politicians care to admit.
That would represent a breath of fresh air, but there will be political pressure to keep the rates as high as possible for the funded benefits to offset the dampening effect of the conservative unfunded rate.
The games will go on, but it will be a little harder to fake the results.
(Paul Hatfield is a CPA and serves as Treasurer for the Neighborhood Council Valley Village. He blogs at Village to Village and can be reached at: [email protected] ) –cw
Tags: accounting standards, Department of Justice, accounting, controller, Wendy Greuel, Greed,
Vol 9 Issue 52
Pub: July 1, 2011