Friday, July 13, 2012

GASB Grows Long Teeth, Bites Financial Directors

Perhaps you have noted that during Karin Schnaider's talks at City Council meetings on the various arcane financial management topics and practices that keep all that money in its proper places, the acronym "GASB" comes up fairly often. GASB, which stands for Governmental Accounting Standards Board, is a public board that oversees how thousands of cities just like ours, and from all over the country, report their finances. They do have their rules mind you, and City Financial Directors such as Karin have to follow them with both precision and diligence. Otherwise things could get less than pleasant. It is all quite serious business.

Every once in a while GASB will tweak their rules. Almost always this is rather technical stuff, and only those who have an intimate knowledge of the inner workings of City finance will notice what the actual tweaks are, or mean. Except that has now changed. This year they pretty much blew the roof off and changed everything, and quite radically. The financial reporting segments of our City Council meetings may never be the same.

This from Reuters (click here):

Little-known U.S. board stokes hot pension debate - The feedback was swift and often scathing when a little-known public board signaled its intent to toughen the accounting rules governing state and local pension funds of millions of U.S. public employees, intensifying worries over a shortfall of billions of dollars.

The plan by the Governmental Accounting Standards Board (GASB) - which was approved on June 25 - drew praise from the American Institute of Certified Public Accountants and from investors looking for transparency in the $3.7 trillion municipal bond markets.

Apparently this change has a lot of people up in arms. Especially those working for public institutions and governmental organizations that are carrying a lot of pension obligations. Up until now those could be put into the relevant GASB reports in a far more optimistic light than what was perhaps warranted. But no longer. Starting next year pensions have to be stacked in with all the rest of the debt and liabilities, and with no more rose colored glasses to read them by.

In one unanimous vote GASB set in motion changes, termed radical even by supporters, that will force many of the worst-off state and local governments to acknowledge much bigger pension shortfalls as liabilities on their balance sheets, while no longer requiring information about how well they are funding those promises. The rules will add volatility to the funds by eliminating the "smoothing" of their liabilities over time, and will impose new accounting costs on already strapped governments.

The new GASB rules don't alter what's owed, but will make some dramatic changes to the accounting value of liabilities. Underfunded pensions will no longer be able to use the projected rate of return on their investments, currently abut 8 percent, to value their liabilities. Instead, any unfunded promises will have to be valued at a far lower rate, close to what it would cost them to borrow the money to cover the debt.

As dry as this might seem to some, this is all very big news. What GASB is imposing here is a standard that brings with it a far greater level of transparency than what we see now, especially in regards to pension debt. No longer will cities be able to report money they haven't earned yet through investments as payments towards pensions. Rather their numbers will have to pretty much reflect things as they really are, and without any undue optimism.

Something that will make it far more difficult for politicians to offer public sector employees the kinds of pensions and retirement benefits that are only a dream for most in the private sector.

The Brown Act Lives In L.A. County

There was a nice little article in yesterday's Pasadena Star News (click here) dealing with the Brown Act and the L.A. County District Attorney's burning desire to enforce it. And none other than Dave Demerjian, the guy who now proudly wears the scalps of ex-COG bossman Nick Conway, along with Richard Van Pelt, formerly of the Sierra Madre CRA Dissolution Board, is vowing to bring all Brown Act violators to justice.

Prosecutors train public on open meeting law - The Los Angeles County District Attorney's Office had a message Wednesday for city councils and other bodies subject to the state's open meeting law: comply with the law or risk prosecution.

Of the 514 Brown Act complaints received since 2001, 18 percent have turned out to be violations, the DA Public Integrity Division's Head Deputy Dave Demerjian told attendees at an educational forum on the issue.

"We feel the Brown Act is very clear. We don't believe in gray areas," Demerjian told some 200 attendees at the forum, which was presented by the County Prosectors Association and District Attorney's Criminal Justice Institute at the Metropolitan Transportation Authority.

Sometimes I can actually believe there might be some hope for this part of the world. Then there is also this:

Wednesday's forum was held one day after open government activist Gil Aguirre of San Dimas asked the Monrovia City Council to acknowledge and correct an alleged Brown Act violation that occurred last December. Council members and then-City Manager Scott Ochoa, who now works in Glendale, discussed his desire to modify his home loan from the city in closed session.

Gil Aguirre's name is beginning to become quite a prominent one in our corner of the San Gabriel Valley.

Today is Chief Black Kettle Day at The Tattler

Noted often for his cleverly phrased and thoughtful comments on this blog, The Chief is celebrating his 70th birthday today. In honor of this achievement in longevity we here at The Sierra Madre Tattler are awarding him our coveted "Banner Of Truth" award for his courageous service to the honorable causes of muckraking and annoying all of the right people. It is leaning against the washing machine in the newly renovated Maundry garage, and he is free to pick it up at any time.

Our congratulations go out to Chief Black Kettle. May his day be one filled with joy.

http://sierramadretattler.blogspot.com

56 comments:

  1. "No longer will cities be able to report money they haven't earned yet through investments as payments towards pensions."
    It is a marvel that they were ever allowed to do that in the first place.

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    1. It is going to be quite interesting when these reports start hitting the news. With the bankruptcies of places like San Bernardino and Stockton, people are going to want to know.

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  2. Happy Birthday Chief.
    And a big thank you for all you do to preserve Sierra Madre.

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    1. Happy Birthday, Chief!
      Thank you for all you do for your Sierra Madre neighbors!

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    2. http://www.jacquielawson.com/viewcard.asp?code=1545489532

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    3. Is it Military thank you day?

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    4. What does Friday the 13th have to do with the military? Are they bringing back the draft?

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    5. Maybe someone was posting a card for the Chief and the link got messed up.

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    6. We all fight for patriotism in different ways. Jeez! Happy Birthday! :-)

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    7. I just liked the art and thought it would tickle his soul for a moment. Doesn't everyone need a tickle?

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    8. And a lovely tickle it was, 6:45 pm. Thank you.

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  3. Chief Black Kettle. His tom tom beats true.

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  4. I hope your Tattler readers with backgtounds in finance and economics read the entire Reuters' article at "click here" and help the rest of us understand the following:

    "By contrast, six of GASB's seven board members work part-time, the board has a budget of $8 million this year, and Chairman Attmore, who draws a pension from New York state where he spent 17 years as auditor, made $424,000 last year. The board members are all knowledgeable of government finance and appointed by a nonprofit professional board rather than a political one."

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  5. Is the Maundry Laundry where you air other peoples' dirty linen?

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    1. That sounds like a full time job!

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    2. FeBreeze donations are welcome!

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  6. It is revealing that little GASB seems willing to force a public accounting on pension debt that Sacramento and other state capitols would not.

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  7. What kind of "force" can GASB exert? After a lifetime in a bureacracy, I don't expect much in the way of action. Not that I've lost hope completely, but I need to see more than tough talk from one bureacracy to the next.

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    1. Cities have to submit reports to GASB. There really isn't any choice.

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    2. The new reporting standard is going to make it very clear to residents how much money is going to pensions. Soon GASB will require the reporting the cost of future health benefits. Finally, we will be able to see exactly what a mess our City finances are because of the union pensions and health care.

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    3. The pension systems and health care benefits were set up in economically robust times, and they made sense in that context.
      Not now.

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    4. 8:29 - By law cities will be forced to show the unfunded liabilities on their balance sheets. Currently these liabilities are in a footnote at the back of the report and allow cities to show a balanced budget when in fact they are ignoring the reality of this massive future unfunded obligation. Most cities will be in the red.

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    5. So the numbers get on the balance sheet, and then some buchamoscamoron says, "Ah, um, folks, being in the red is ultimately a good thing, because, um, ah, red is my favorite color, and without unfunded liabilities, we will lose the library."
      Then what?

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    6. Red is the new green.

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    7. GASB has to be an independent organization because it is tasked with holding government agencies to high accounting standards. And as we all know, government doesn't regulate or control itself very well. This is a great thing. At last somebody has shown some guts.

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    8. It will cause smart city councils and the public to realize that there is a frieght train coming at them and they had better start making plans for the future. Sierra Madre cannot afford these future pension costs. The future cost will be greater than the general fund.

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    9. In Moranistan, maybe the Green Committee (Commission if King Josh gets his way) will be renamed the Red Commission. Somewhat fitting, I think.

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    10. I hear Sacha Baron Cohen is bidding on the story.

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  8. I don't know enough about it but by what authority does GASB and other such entities come into being?

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  9. Lets Look at the Facts HereJuly 13, 2012 at 11:53 AM

    Properly set up, a pension system should be fully funded, a lot of cities have done that. Fully funded would mean that with matching funds from the employee and the employer when the employee retired the city would not have to keep paying. Matching $ from the each goes into a pension fund that is properly managed. Money from City and Employee paid each payday leaves very little for the employer to pay at retirement. Just like the Federal Government with the Social Security, governments like to keep that money and are now in a bind for paying pensions. This is in no way the employees fault, it is what the controllers want. NOW, when its time to pay the piper every one is blaming the poor stiff who worked all their life under such a system. This is wrong but everyone wants to blame the person trying to get what they have earned, only to be told they are sucking the cities dry. Nice situation, blame the worker.

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    1. I'm not certain it is that easy. I for one would never dispute that people who put in 25 or so years working in some tank town city hall have benefits coming. Unfortunately, we live in a state that no longer produces as much as it did. Revenue is not being generated. And given the overall financial condition of this country, these kinds of outlays are no longer sustainable. It isn't about who deserves what. It is about where is the wealth being generated needed to sustain these kinds of underfunded obligations. The money is no longer there. Just look at what is happeneing in the private sector.

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    2. I am also a working stiff, but I don't get why I'm supposed to have more dependents than I already do because someone decides to work in a government job.
      It was the career city hall person's decision to work there.
      Just like the teachers - they decide to take that job.
      Why does that make me responsible for their care the rest of their lives?

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    3. I don't think everybody fighting here will matter much. The state has been hollowed out financially, tax revenues never seem to live up to projections, and there isn't a lot more you can ask people to pay. This is what a society in economic decline looks like. There is no longer enough money to sustain cradle to grave care for government employees. That is what reality looks like.

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    4. Yep. There is no longer anyplace to hide.

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    5. Actually, 12:47, this is what a society that has 49% of people paying income tax and 51% living on entitlements looks like.

      Spain & Greece are just 2 examples that come to mind, although California is catching up fast!

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    6. As a retired teacher receiving over $7,000.00 per month for life, I can understand the resentment in those whose lives are not subsidized by the taxpayers.

      Sure, I paid in 8% of my inflated salary (from taxpayer funds) matched by my district (also with taxpayer funds). Then the fun starts. The money is invested in the financial markets, and when the Dow was soaring during the Clinton years, the payouts were based on best-case scenarios.

      The picture is not so rosy now, and if the markets can't meet the payouts, taxes will be raised to cover the shortfall.

      $7,000.00 per month for life for teaching 15 hours a week. Your friendly teacher union watching out for you.

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    7. 2:39, thanks for posting - I think. When my blood pressure returns to normal, I'll look for a teaching job.

      I also know of firefighters and police officers who work an insane (and dangerous) number of shifts in their last year or two on the job in order to ratchet up their retirements.

      These systems will fall apart because of greed. We're no better than the communists.

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    8. It's nice to know that wise Tattlers recognize BS when they hear it.

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  10. This will spice up the next budget presentation.

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  11. What are the remedies?
    I get it that first of all, every non-essential service has to be cut, and a pruning of all city staff positions has to take place. Will that be enough?

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  12. I'm curious, would the size of the the known defense budget and the dozen or so black budget expenditures have anything to do with anything that is happening to this country .....your thoughts??

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    1. Absolutely George.
      The waste and misdirection of the enormous resources Americans have and produce is truly lamentable.

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    2. I want to know why the Feds and Sacramentals spend so much money on useless organizations like SCAG and COG? What possible good do they do? Have SCAG's RHNA numbers ever built a house anywhere?

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  13. Understand the Facts PleaseJuly 13, 2012 at 3:49 PM

    2:39 your just trying to stir up the pot here, shame on you, or you just don't get it. 12:02 you just said it yourself, underfunded obligations, listen to what your saying. 12:35. 12:47 what part do you not get here. When a pay check is issued the employer and the employee both put in their portion for the pension. The money goes into a managed pension account for when the worker retires. When the worker retires the money is already there and the city pays no more on that worker. I hope that is a little clearer for all to understand. THE PROBLEM,,, the Government/ Companies don't want to give up that money so they don't put it in a retirement account like they should. When it comes time to pay for the workers retirement the Government / Companies have spent the money and now go to the people and say it's the workers that are breaking them, a typical finger pointing away from them not putting the money aside like they should have. Again, the best example is the Social Security System, they never put money aside they just paid out of the general fund and now it's more than they can handle. Some people just cant see that and will continue to complain, bet these are the same people that never put money away for their retirement. If you want to put the blame on some one at least blame the right party. It is this mentality that buys into the lies that puts the blame some where other than where the real problem is, and thus it continues.

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    1. Where can I get a pot to stir like the one 2:39 has?

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    2. Some pots are filled with homegrown ingredients. And some come in a can and are purchased at mass merchants. You should always read the labels first.

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    3. The post from 3:49 shows why the taxpayers need to pay teachers and civil servants retirements using a defined contribution (aka 401k) plan.

      We make contributions while they work. When they quit or retire, they take that "pot o' money" with them and do with it what they will. No further pension payments for retired workers would be owed by the citizenry.

      You could actually set a real budget on that!

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  14. "The money goes into a managed pension account for when the worker retires. When the worker retires the money is already there and the city pays no more on that worker."

    Depends on how the money is managed.

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    1. That would be the ideal. But obviously in many cities that money was used for other purposes.

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  15. Oh, 2:39 gets it alright. 7k per mo. Are you kidding me?!

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  16. Note to me. Next time marry someone with a government job.

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  17. $7,0000/month retirement...for 15 classroom hours per week. That is not a full time public elementary or secondary assignment/retirement. So is this from a public community college? For how many years. And were you supposed to prepare lessons, grade essays/tests, etc? Hold office hours? Or was this a private college/university? Did you augment this with department chair stipend?

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  18. Hey 2:39~ Where did you teach? What district did you retire from?

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  19. Pasadena Star News has a poll up asking if the SGVCOG should be disbanded. So far it is a unanimous yes. The link to the Star News is to the right. The SGV Tribune has the same poll up. That site is also linked to the right. Vote and vote often!

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    1. I just voted yes in both. Thanks

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  20. The constitution of California should be amended to forbid the state and all local governments from ever again offering employees defined benefit pension plans.

    How did we the people allow public sector employees to make more money than the private sector while working fewer hours, taking more vacation days, and with virtually no risk of being fired or laid off?

    We The People need to stand up to the rabid politicians licking the boots of the unions and toss them out on their fat asses. DEMAND that public employees convert to a defined contribution plan similar to the 401(k). The rest of us are subject to the fluctuations of the market, and so should the "government class."

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