In 2011, a flawed research paper was used as the basis for proposed federal legislation to mandate costly pension reporting requirements on state and local governments.
The bill's sponsor, Rep. Devin Nunes, R-Calif., distributed to the press and posted on his website a brochure listing the year each state would exhaust its pension assets that was prefaced by, among other things, the comment that, These insolvency dates are based on generous assumptions concerning the performance of pension plans and are likely the best-case scenario. As should have been expected, these claims received a fair amount of public attention.
What received almost no public attention, however, was a report, State and Local Government Pension Plans, issued by the Government Accountability Office in 2012 that found the projected exhaustion dates are not realistic estimates of when the funds might actually run out of money.
In fact, there was no GAO conclusion that the funds should be expected to run out of money in the foreseeable future. Further, those states the research paper projected to be the first to become exhausted, namely Oklahoma and Louisiana in 2017, are predictably nowhere near insolvency.
Yet the bill's sponsor is renewing claims of public fund insolvency, as well as efforts to pass what is again being called the Public Employee Pension Transparency Act. Improved transparency should result in financial information that is clearer and more useful in making decisions. PEPTA, on the other hand, would threaten to tax municipal bonds, the bedrock of infrastructure financing, if state and local governments do not disclose what their liabilities would be if their pensionfund assets were to be immediately terminated and sold an action that would be impermissible in nearly all jurisdictions. Accordingly, it is difficult to understand how a punitive unfunded federal mandate to publish such a number would be helpful or useful to affected stakeholders and policymakers.
A multiyear process was recently undertaken to review the accounting standards for state and local government pensions. The Governmental Accounting Standards Board, an independent agency that sets financial reporting standards for state and local governments, is overseen, administered and financed by the Financial Accounting Foundation, the same independent private-sector organization responsible for oversight of the Financial Accounting Standards Board that sets corporate accounting standards. Serious consideration by GASB was given to suggested public pension disclosures, including the requirements in PEPTA. While numerous substantial changes were ultimately included in the new accounting standards, which will be part of state and local government financial statements this year, a termination calculation similar to PEPTA was not deemed appropriate.
Suggesting that Congress should mandate costly disclosure requirements that conflict with newly established accounting standards for state and local governments is inappropriate. Making false claims about the probable exhaustion of public pension resources, like yelling fire in a crowded theater when there is none, is indefensible. n
Gary Findlay retired in January as executive director of the Missouri State Employees' Retirement System, Jefferson City.