June 13, 2007

What pension liability...?

LAAG does not like the sound of this. On the one hand we like the Texas legislature saying the public coffers are not "guaranteed" to be paid to secure health benefits to public workers (just like in the private sector there are no guarantees of anything). How ever it looks like states are taking their cue from the feds: just fix the accounting so that no deficit has to be disclosed to the public! PERFECT! Why didn't we think of this before? If we don't show the liability on the books it does not exist right? This is the way public officials and politicians actually think. Maybe they will let all the private citizens that support these public workers do the same "creative accounting" on their taxes. Somehow I don't think that will happen. Unbelievable.

Daniel Weintraub: Moving past denial on retiree health care liability
By Daniel Weintraub -

Published June 12, 2007
Story appeared in EDITORIALS section, Page B7

There has been a lot of gloom and doom lately as California's state and local governments have begun to come to grips with the massive unfunded liability they face for health benefits they have promised to retired public employees.

But it could be worse. They could be downplaying the problem and telling the obscure private board that sent them into this scramble to buzz off.

That's what at least two states -- Texas and Connecticut -- appear to be doing. And the rebellion might be spreading. But not to California, so far.

And that's at least a glimmer of good news in an otherwise depressing story.

The Government Accounting Standards Board set all of this in motion when it ruled that state and local governments should tally up how much they owe for retirement benefits and then disclose that number publicly as part of their official balance sheets.

But not everyone is going along.

Texas made national headlines last month when its Legislature passed a bill that declared the Lone Star State independent of the accounting board on this issue. Since Texas does not have public employee unions or union contracts, state officials contend that the health benefits they pay to retirees are not guaranteed. The Legislature, in theory, approves them every two years with the budget and could revoke them at any time.

As a result, the state's comptroller, Susan Combs, has argued that it would be wrong to disclose a long-term liability and worse to set aside money to pay for it, since, in her view, no obligation exists.

She may be on firm legal ground. Some local governments in California are considering the same issue. They are not turning it into a protest against the accounting standard or the board itself, as some in Texas seem to want to do. They're just saying that if they don't guarantee the benefits, then the taxpayers are not liable for those benefits into the future. That makes some sense.

Combs wants to create a separate accounting mechanism to measure and report what the liability would be if Texas continued to pay health benefits to retirees as it does today. That number is expected to be about $50 billion over the next 50 years.

Connecticut's challenge to the standards is both more subtle, and more troubling. That state does have a true, legal liability. It just does not want to admit it.

Connecticut's Legislature is considering a bill that would authorize its comptroller to simply ignore the accounting board's rules -- all of them -- and come up with her own instead.

Comptroller Nancy S. Wyman has suggested that Connecticut set aside $100 million from a surplus in this year's budget and 10 percent of any future surpluses. Those actions, she said, would help reduce the state's projected liability of $21 billion. But she says that trying to do more would risk a backlash from legislators and the public that might result in even less progress.

"I'm trying to get this state back onto the right accounting principles and to do its accounting and budgeting in the right way, and the only way I can do that is by this piece of legislation," Wyman told the New York Times.

If that's the case, ignoring widely accepted accounting standards is a strange way to go about it.

In nearby Suffolk County, N.Y., the comptroller was even more blunt -- and more ignorant.

"All of a sudden we have to project 25 to 30 years down the road," County Comptroller Joseph Sawicki Jr. told Newsday. "It's ludicrous. ... It's another bureaucratic mandate coming from the federal government, which is costing every municipality money to hire these consultants to evaluate our costs down the road."

Actually, it's not a federal government mandate. The Government Accounting Standards Board is a private, nonprofit organization, and its standards are voluntary. Its purpose is to make government accounting at least as transparent as corporate accounting, to give the public and investors more insight into public agencies' assets and their liabilities.

Fortunately, the kind of pushback the standards are getting elsewhere hasn't been happening in California. State Controller John Chiang hired an actuary a year early to determine what the state's liability will be. His answer: $48 billion.

Gov. Arnold Schwarzenegger and the legislative leaders, meanwhile, have appointed a commission to study the problem and recommend ways for the state and local governments to deal with it, either by setting money aside or by reducing benefits, or both.

And CalPERS, the state pension agency, has established an investment fund to which the state and local governments can contribute and (it is hoped) see their money grow over time, paying for retiree health benefits the same way that pensions have been financed for years.

Getting on top of this issue is not going to be easy. There may be more resistance once the government is forced to actually put some money away rather than only talking about doing so. But California is at least not in complete denial. And that's better than some other places are doing.

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