The balance sheets of U.S. cities, states and counties will look very different this year because of changes in some key accounting rules from GASB that will require local governments to publish their long-term pension obligations. While the prior GASB standards focused on plan expenses, the new standards shift the focus to balance sheet items and view pensions as part of an employee’s compensation.
The literature predicting how much local government bond ratings will be impacted by changes in governmental plan reporting is all over the map; some authors forecast doom and gloom, while others claim the changes in GASB will be barely discernible. What is not debatable is that the long-term pension obligations will get more exposure from the public.
For many local governments, such changes in reporting couldn’t have come at a worse time. Still reeling from the effects of the Great Recession that has caused many plans to lower assumptions for investment returns, and already experiencing substantial declines in current plan funding ratios, the changes in reporting methods and inclusion of unfunded pension liabilities on governmental balance sheets has been met with concern and in some instances, outright panic. Since a significant number of state and local plans are underfunded there is little doubt that the new GASB reporting will in many cases have a material impact on governmental balance sheets.
Read the full story published by the Arizona Capitol Times.