The Budget Is The Thing

Further to our recent opinion piece about state and local government accounting, a reader asked for an illustration of a state budget ignoring costs. California’s treatment of insurance subsidies provided to retired state employees (known as “Other Post-Employment Benefits,” or “OPEB”) provides one such illustration.

In an obscure report required by the Governmental Accounting Standards Board (GASB) and read by few, California's State Controller discloses that the state incurred OPEB Expense of $5.658 billion in the 2017–18 fiscal year:

But only $2.267 billion of OPEB expense showed up in the proposed state budget for that year, which -- unlike the obscure report -- is read by many and even presented at a press conference by the governor:

The difference — $3.391 billion — was ignored by the budget. That amount quietly became an IOU, which is how $85 billion of OPEB debt has quietly been accumulated by the state. That's more than the state's outstanding General Obligation Bonds, which unlike OPEB obligations must be approved by voters.

Citizens and journalists pay attention to budgets, not to obscure reports. It is budgets that California’s governors are required by law to issue in January, that legislators debate for five months, and that must be enacted by June 30. Critical information should be in budgets, not just obscure reports.

GASB could help. The GASB rule that requires disclosure of OPEB Expense already requires disclosure in the same report of the actual amount paid. It should require that all published financial documents include both items. Just as all financial documents published by private sector enterprises must comply with Financial Accounting Standards Board (FASB) rules, GASB should require that all financial documents published by governments comply with GASB rules. 

GASB can’t control how elected officials choose to budget but can control the integrity of financial information published by governments. It shouldn't require truth only in obscure documents that few read. Budgets are the key documents in state and local governments. GASB should demand truth in all published financial documents, including budgets.