Analysis of the GASB 45 issue
Harvey Kronberg, friend of TSCPA and publisher of the Quorum Report, offers this inside view of the debate over GASB 45 and whether local governments should have to abide by it.
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TEXAS LAWMAKERS EXPLAIN RESISTANCE TO GASB45
Duncan urges other states to resist accounting ruleAttitudes toward Texas’ decision this year to opt out of new accounting rules on how to count future health benefit obligations were perhaps summed up by the lede in a Bond Buyer article last month.
"Texas will have some explaining to do when the National Conference of State Legislatures convenes in Boston next month," the article began.
Today, Texas got its chance to do some explaining. Rep. Vicki Truitt (R-Southlake) said at a panel discussion that the new rule, officially known as GASB (Government Accounting Standards Board) 45, would force the state to violate its own Constitution, which prohibits lawmakers from obligating spending from future Legislatures.
She stressed that the legislation, HB 2365, only made compliance with GASB 45 voluntary. Local governments are free to follow the rule if they want, she said. The law also clarified that the state doesn’t have a binding obligation to fund its employees’ health benefits.
Sen. Robert Duncan (R-Lubbock) followed on Truitt’s presentation by saying that the standards board had created a flawed rule that defined health benefits as a state obligation. In Texas, that is not the case, he said.
He added that the board compounded the problem by not taking objections to GASB 45 properly into account when adopting the rule. He asserted that Texas was demonstrating leadership on the issue by objecting to the way in which GASB 45 is being implemented.
He said that the states should take collective action on GASB 45 and urged NCSL to take a formal position on the issue.
The Texans, however, were alone in asserting the right to exempt themselves from GASB 45. Robin Prunty of Standard & Poor’s said that it was important to have a rule that would make states provide better information on future obligations such as employee health plans.
Part of the intent behind GASB 45 is to force states and local governments to size up the cost of potentially expensive future health benefits and thus take steps now to mitigate the impact on future budgets.
Those actions are being watched by bond buyers, bond ratings agencies and the Securities and Exchange Commission, according to Massachusetts Deputy Comptroller Eric Berman. He warned that opting out of GASB 45 could have unintended consequences. Among those could be the decision to impose the same reporting requirements on disclosing future benefit obligations that are currently required of the private sector. Those disclosures are much more draconian than the current GASB requirement, he said.
Prunty said that bond rating agencies recognize that getting a handle on benefit obligations will require action over the long term solution. States shouldn’t fear that their bond ratings will get dinged in the short term for complying with GASB 45 and posting large liabilities on the books. She could not say, though, how long it would be before those liabilities translate into lower bond ratings.
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