“No Man’s life liberty or property is safe while the legislature is in session”.

- attributed to NY State Judge Gideon Tucker

Monday, October 4, 2010

Questions of Bias On The GASB

Friday's Wall Street Journal highlighted a rather shadowy issue involving the Government Accounting Standards Board.

Essentially, the GASB sets rules regarding how municipalities and states should account for and value their pension plans. The article observed that three of the seven members of the GASB "work for local, state or county governments, giving them a vested interest in accounting standards that would help public pension funds minimize future contributions."

It continues to explain,

"At the heart of the debate is the issue about how funds calculate the size of their future obligations to retirees. By reducing this discount rate, GASB could force some governments to put more money into their plans.

Critics say the current rates used by many funds are too high, because they largely are based on unrealistic return expectations for the funds' investments."

So, connecting the dots, the concern is this. Unionized employees of state and local governments sit on a government accounting board and have influence on keeping pension fund expected return rates high, so that pension shortfalls are lower, and voters are lulled into apathy regarding the true nature of the funding emergency across the nation. At the same time, such shortfalls would, the article notes, "likely trigger(ing)  increases in required contributions from employers and employees.

Further, being so lulled, they will not mobilize to cut back the government workers' pensions, make them pay more, and, in general, end the existing gravy train of low- or no-cost pensions and healthcare plans, higher-than-private-sector average pay, and defined benefit, rather than defined contribution, pension plans. And the unionized government workers will not experience immediate higher deductions for their own pension and healthcare plan contributions.

By disguising the existing government worker pension plan obligations and shortfalls, these few key board members can delay the onset of voter outrage across the nation.

This is no small matter. On one hand,  some claim that having state and municipal workers on the GASB lends practical experience. On the other hand, it is putting foxes on the board overseeing the chicken coop.

We should all be more interested in this arcane financial backwater than we probably have been until now.

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