Public Agencies Must Report Liabilities
A "staggering burden is coming to light" as new standards issued by the Government Accounting Standards Board will require public agencies to disclose the future cost of health care and other non-pension benefits for active and retired state and local government employees, the AP/Houston Chronicle reports.
Under the new rules, public agencies will have to report the future costs health care and other benefits -- such as dental, vision and life insurance -- for the nation's estimated 24.5 million public employees. GASB, a not-for-profit organization that establishes accounting standards for public agencies, created the rules in 2004 and allowed governments several years to put them in place.
Under the new standards, set to take effect in 2008, governments will be required to disclose the value of current and future costs and estimate how much money is needed to pay for them. Under the rules, states must pay their liabilities over a 30-year period.
If state officials choose not to earmark funds to cover the payments each year, the liabilities will count against net assets, "potentially putting a city or agency deeper into the red," the AP/Chronicle reports. Because assets are a "critical component in the credit ratings that allow governments to borrow money at lower interest rates, governments that don't handle their liability properly could end up insolvent," according to the AP/Chronicle.
No state has yet to release an official estimate of its liability, but "preliminary assessments are reporting astounding numbers," the AP/Chronicle reports.
The California Legislative Analyst's Office estimates its liability is between $40 and $70 billion, not including cities and counties; New York's estimated liability is between $47 billion and $54 billion; and Maryland has an initial estimated liability of $20 billion.
JP Morgan last month estimated the value of the unfunded health care and other non-pension benefits to be between $600 billion and $1.3 trillion.
Ronald Snell, director of state services for the National Conference of State Legislatures, said, "When the numbers are produced, they're going to be shocking." He added, "They'll be in the hundreds of billions, and it's definitely something that policymakers are going to have to take notice of and act upon. ... There are consequences of decisions made in the past."
Assembly member Keith Richman (R-Granada Hills) said, "There's a good chance some government entities are going to go bankrupt. But the issue isn't just bankruptcy, it's governments dying of a thousand cuts in services. The costs of promises that have been made are going to be astronomical" (Porterfield, AP/Houston Chronicle, 9/24).