The GASB Shoe Falls on California Pension Plans

Pension Crisis StatesFor years, pension hawks like Orange County supervisor John Moorlach have been warning that California’s already toxic public employee pension plan deficits will get much worse once Government Accounting Standards Board (GASB) rules take effect. Among other things, the rules will require the big pension plans like CalPERS and the teachers’ plan CalSTERS to use more realistic projections for the returns they will earn on their investments. Now we know how much more toxic:

New government accounting rules will more than double the pension debt reported by CalSTRS, boosting an “unfunded liability” that is now about $71 billion to a newly calculated “Net Pension Liability” of $166.9 billion.

The CalSTRS board was told last week that it’s unclear whether the new liability figure will be reported by the state or spread among school districts, where more than doubling current debt might lower credit ratings and drive up borrowing costs.

If the “Net Pension Liability” is distributed among employers, the reported total debt of a typical small-enrollment school district might jump from $21 million to $49 million and the debt of a typical large district from $280 million to $728 million.

Neither the state nor the school districts have been including CalSTRS debt in their financial statements. The new accounting rules call for pension debt to be added to employer balance sheets. [CalPensions]

GASB exists to end of the sort of accounting shenanigans described here, including projecting investment returns well above those earned by Warren Buffett and this: “Neither the state  nor the school districts have been including CalSTRS debt in their financial statements.” This practice is, to use an accounting term, insane. The state and the school districts know they will be hit with hugely higher pension costs unless the current pension debt isn’t zeroed out by either (1) most retirees dying tomorrow or (2) the market routinely returning more than 8 percent on all investments, all the time.

The big public employee pension plans are required to switch to GASB rules in this year’s financial reporting, and employers whose employees are covered by the plans – your city, your county, your school district – must make the switch in their 2014 reports.

Look for two things: First, the unions will blame it all on “just a change in accounting rules,” even if those rules exist to create more accurate reports, and second, government at all levels will be coming at you with tax  hike proposals.

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