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Possible Government Financial Reporting Change Could Make Governments’ Fiscal Picture Less Accurate, Observers Say

By Dave Fidlin

(The Center Square) – State and local governments could have more leeway in reporting the components of their balance sheets, based on a proposal under review. Critics, however, say, it could to lead to a less-than-accurate depiction of an entity’s financial situation.

The Governmental Accountability Standards Board, or GASB, is in the process of a years-long project that could provide taxing authorities with new guidance on preparing annual financial statements.

So-called exposure drafts have been released from GASB on the recognition of elements of financial statements and financial reporting model improvements. GASB, a Connecticut-based organization, has functioned as a source for generally accepted accounting principles for governments outside the federal sphere in the U.S.

Bill Bergman is the director of research with Truth in Accounting, a Chicago-based nonprofit focused on government spending. Bergman said he is concerned with a number of proposals within the drafts, particularly as the would-be guidelines relate to accrual accounting principles.

If implemented, the revisions stipulate governments would not have to include such long-term liabilities as bonded and unfunded pension debt in an actual balance sheet.

In addition to Truth in Accounting’s home base of Chicago, Bergman said he is concerned how the revisions would play out in other large cities, such as New York City.

Bergman and others within Truth in Accounting have taken aim at the manner the pair of cities have historically reported their financial statements to the general public as balanced without fully factoring in debts and other future obligations.

“New York City is a pretty important example of this, I’m afraid,” Bergman said in an interview with The Center Square of his concerns. “If New York City is balancing its budget each year, how can that explain the accumulation of a massive negative net position?”

Accounting standards within government have been different than those in place in the private sector. Bergman said he is concerned the divide between the two is going to increase if GASB’s drafts are adopted.

“Historically, governments have been able to borrow money as a source of revenue, which is not good accounting,” Bergman said. “Effectively, it’s like telling your spouse you’re balancing the budget, but you’re planning to run up the credit card in order to do that. That’s the type of behavior that government has taken.”

GASB is taking written public comments on its drafts through Feb. 26, and further overtures for feedback – including hearings – are scheduled for this spring.

Throughout the public comment period, GASB has been posting correspondence, and much of it has taken aim at the proposed changes.

“Virtually all states and most local governments require the chief executive to submit ‘balanced’ budgets,” Martin Ives, a Westchester County resident and former GASB member wrote. “In fact, however, budgets may be balanced mathematically, but not substantively.”

New York City resident David Musher shared similar sentiments in his correspondence to GASB, saying governments’ long-term liabilities will continue remaining obscure from public view if the changes are adopted.

“Governments may choose to make their funds statements look better in the short run, simply by underfunding necessary pension and other retirement benefit contributions,” Musher wrote.

GASB’s public comment period coincides with the unveiling of New York City’s proposed fiscal 2022 budget, which has a number of gloomy economic figures amid COVID-19.

City Comptroller Scott Stringer reports the preliminary budget’s $5.5 billion gap was closed through several maneuvers, including budget cuts, use of contingency reserves and debt refinancing.

In testimony early this month, Stringer shared with the state Legislative Fiscal Committees a number of issues related to the city’s current and future fiscal situation.

“Sound budgeting and fiscal management means looking not just at this year and next, but at longer-term sustainability,” Stringer said.

 

Originally published by The Center Square. Republished with permission.

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