80th LEGISLATURE

Retiree benefits standard rejected

Many states are choosing to comply with accounting standard.

By Robert Elder
AMERICAN-STATESMAN STAFF
Friday, May 11, 2007, Austin American-Statesman

Against the advice of the nation's top accounting firms, academic experts and some of Wall Street's big names, the Texas House on Thursday unanimously approved legislation that rejects a nationwide accounting rule on the long-term costs of benefits to retired government workers.

If the Senate follows suit, Texas would become the first state to say its governmental entities do not have to follow the rule issued by the private, nonprofit Governmental Accounting Standards Board.

The rule, which the board adopted in 2004, is intended to inform the public and policymakers how much a state or local government will have to pay to provide health care and other benefits to current and future retired workers.

The extent of those benefits could affect Texans' tax bills and the sales of bonds backed by governmental entities.

The rule also requires governments to disclose how they plan to pay the tab, although it doesn't require money to be set aside.

Accounting experts and credit-rating agencies say the legislation, if signed into law, could damage the state's credit ratings and raise its cost of borrowing money.

One state estimate says Texas could rack up $50 billion in liabilities in the next 10 years if it doesn't start setting aside money to pay for them.

Texas legislators' campaign against the rule, an effort joined by Comptroller Susan Combs, accelerated a national debate about transparency in government accounting and concern over how the rule will affect state budgets and benefits for retirees. (The rule does not address pension payments, only retiree benefits such as health care and life insurance.)

Rep. Vicki Truitt, R-Keller, said Texas shouldn't have to follow the rule because the state appropriates money for retiree benefits every two years and doesn't promise the benefits.

Truitt said the rule, which requires states to list the retirement costs as a liability, violates the state constitution because it commits future Legislatures to continuing to fund the benefits.

If the state has to start pre-funding the benefits, Truitt said, lawmakers might decide instead to cut benefits. And that, she said, means "retirement benefits, these post-employment benefits will disappear, putting many more thousands of Texans among the ranks of the uninsured."

Truitt's reasoning is "preposterous," said Gerard Carney, a spokesman for the accounting board. The rule simply mandates that governments disclose their long-term costs, Carney said. "Economic reality does not change when it is transparently presented to the public."

"The Texas House bill won't change economic reality," he said. "It's an attempt to hide the cost from the public."

Texas officials, including Combs and Travis County Auditor Susan Spataro, an early opponent of the rule, hope to persuade other states to join their opposition.

By and large, though, states are reluctantly acknowledging they will have to comply with the rule, and some of the largest jurisdictions plan to set aside money to help pay future retiree benefits in addition to funding on a pay-as-you-go basis.

In Texas, financial officers of large cities, including Houston, oppose the Truitt legislation.

The measure, House Bill 2365, allows governmental entities to follow the rule if they choose to. If they don't, the bill allows governments to include a laundry list of information about their costs of retiree benefits.

The Legislative Budget Board, which analyzes bills, said if Texas financial statements do not comply with the accounting rule, it "would lead to adverse opinions by outside auditors."