State and local governments could be required to have more disclosure of pension costs and other financial obligations under new GASB accounting rules proposed Tuesday.
In the first step of what could be a lengthy rule-making process, the Governmental Accounting Standards Board issued a “preliminary view,” on the proposal to create new rules, which calls for five-year projections of cash inflows and outflows and other financial obligations, including pensions obligations and long-term contracts, “with explanations of the known causes of fluctuation,” according to a GASB news release.
The proposal seeks “to better enable taxpayers, bondholders and other interested parties to assess the government's financial condition,” according to the release.
Additional disclosure is needed “because of significant concerns expressed by users of state and local government financial reports regarding the importance of understanding whether governments are on a financially sustainable path,” GASB Chairman Robert Attmore said in the release.
William B. Fornia, president of Pension Trustee Advisors, an actuarial consulting firm, worries that any pension projections made under five-year scenarios “will be unreliable” without knowing stock market returns for the same period. “And the volatility is even stronger under the Exposure Draft pension accounting standard,” he said.
Mr. Fornia also worries that the latest proposal would create incentives “to make the pension projections come true” by improving benefits or underfunding plans. “Either way, sound finance loses,” he said.
GASB will seek public comment on the proposals through March 16, 2012, and hold two public hearings — in Los Angeles on March 29 and in New York on April 17.
The full text of the proposal is available for download from the GASB website.