[post_thumbnail]Kelly Cross, spokesperson for the Public Employee Retirement System of Idaho, is concerned that a change in requirements for reporting pension liabilities could cast a false light on the Gem State's fund.
A small change in how Idaho governments report their pension liabilities will give local taxpayers more accountability and transparency in 2014.
In June 2012, the Government Accounting Standards Board (GASB) voted to require local units of government—school districts, cities and counties, for example—to report their pension liabilities on their balance sheets.
Previously, governments were only required to disclose to taxpayers how much the entities paid into the pension system.
One expert says the move is positive for those who fund government operations. “It will force local governments to recognize larger liabilities, which will lead to increased required contributions or at least increased visibility of unfunded liabilities that could create some pressure for reform,” wrote Cory Eucalitto, a pension expert working for State Budget Solutions, a conservative Washington, D.C., think tank.
As it stands, Idaho’s local governments aren’t required to report their pension liabilities. Instead, the Public Employee Retirement System of Idaho (PERSI) tracks that for the 756 employers that take part in the government pension program.
The Public Employee Retirement System of Idaho (PERSI) has reported its total unfunded liability at about $1.4 billion. Thus, though Idaho’s retirement system is widely considered one of the strongest in the nation, it now holds only 90 percent of the assets required to cover its obligations.
Kelly Cross, PERSI’s communication director, told IdahoReporter.com said the GASB accounting change has the potential to spook officials and taxpayers.
“The presence of an employer’s unfunded pension liability on their balance sheet could give the incorrect impression that the employer has an immense debt that is due immediately,” Cross wrote in an email. “That is not the case.”
Instead, Cross added, pension costs are paid down over long periods of time. He compared pension liabilities to a home mortgage. “The liability amount reported on the employer balance sheet will be paid down by employer contributions to the fund over many years,” Cross said.
The accounting change will have no effect on the fund’s balance, assets or funding mechanisms. Governments will need to report their share of the pension liability starting in fiscal year 2015, which starts on July 1, 2014.
After that date, taxpayers in, say, Boise will know exactly how much of the state’s pension liability stems from the local school district.
As Eucalitto noted, the brighter light on pension funding trouble could spur reform efforts to preserve funds for necessary government services.
Earlier this month, IdahoReporter.com revealed that the Idaho pension system ate up nearly 50 million extra dollars this year due to funding woes. About $7 million of the came straight from the education budget.
In short, the pension system assessed $50 million that could have paid for more government services, teachers in the classroom or cops on the street.