Texas Slated to Explain GASB 45 Alternative at NCSL Conference

DALLAS — Texas will have some explaining to do when the National Conference of State Legislatures convenes in Boston next month. Among the topics under consideration is a new Texas law allowing an alternative to the Government Accounting Standards Board’s Statement 45 on reporting future costs of retiree health care costs.Two Texas legislators who played key roles in passing HB 2365 exempting the state from GASB 45 provisions were Sen. Robert Duncan, R-Lubbock, and Rep. Vicki Truitt, R-Southlake. They will appear in a panel discussion with Catherine Fernandez, director of the New Mexico Legislative Finance Committee, and Robin Prunty, director of public finance for Standard & Poor’s.Duncan said he hopes to get the NCSL more involved in dealing with GASB 45 issues.“There needs to be a better level of dialogue between state legislators and GASB,” he said. “For states like Texas that are pay as you go, obviously GASB 45 doesn’t fit what we do.”Under GASB 45, state and local governments must estimate their future retiree health costs as other post-employment benefits. The future cost is considered a liability, but the governments are not required to provide advance funding.Duncan said he respects the role of GASB in government accounting but thinks the board has veered into the policy realm with Statement 45.“If we want to make our OPEBs a liability, that’s our prerogative, not GASB’s,” he said. “This wasn’t total civil disobedience.”While no other states have followed Texas’ lead in enacting laws to exempt themselves from the accounting standard, “certainly, there’s interest in what Texas is doing,” said Ron Snell, director of the state services division for NCSL in Denver. “I think it’s a broad concern among the states that have a liability — not all do.”So far, no local governments have availed themselves of the GASB 45 alternative, and Moody’s Investors Service analyst Dwight Burns said he has not heard of any.In Texas, Duncan and Truitt were among leaders of the opposition to GASB 45, claiming that the measure violated the state constitution’s provision that no government can commit to spending beyond a two-year period. Opponents to GASB 45, including local leaders, such as Travis County auditor Susan Spataro, claimed that retiree health care benefits were an annual expense and that projecting future costs was too inexact to accurately reflect a government’s financial position.Rating agencies have reported that HB 2365 would have no immediate impact on the ratings of the state or local government.But in an assessment released this week of laws passed in the 80th Session of the Texas Legislature ending in May, Fitch Ratings drew special attention to HB 2365.“Fitch believes that the commitment to fund OPEB in Texas is similar to that in other states where Fitch expects widespread compliance with GASB 45 (non-compliance may result in qualified auditor opinions),” Fitch analysts wrote in the report. “Further, Fitch considers non-compliance with GASB 45 a management weakness.”Although Texas lawmakers were originally considering a wholesale exemption from GASB 45, they compromised in the end, giving local governments a choice.The alternative methodology would require reporting only OPEB expenditures during the current reporting period, Fitch notes. Any disclosure of future benefit obligations would be optional and would appear in the statistical section of an annual report.In official statements on bond issues since Gov. Rick Perry signed HB 2365 in June, local governments have reported their anticipated OPEB estimates based on preliminary studies. GASB 45 requires governments with revenues of more than $100 million to begin complying during the current fiscal year. Statements on OPEB costs could be coming from the states between now and the end of the calendar year, Snell said.“Fitch sees compliance with GASB 45 as a first step in a multiyear process of addressing what in many cases will be sizeable liabilities,” the agency wrote. “Fitch will incorporate a government’s approach to OPEB, as well as the size of the obligation itself, into its overall analysis of a particular credit’s strengths and weaknesses.”