Truth in the Elections

How did Sheila's testimony at the GASB?
9/10/2009
An interested party asked me the following questions.

A frequent visitor to our website emailed me the following:

Please let me know how GASB responded to your questions like, "Whether the amounts that are disclosed deep in governments’ financial reports as 'Unfunded Actuarial Accrued Liability' should be reported
as a 'liability'?"

Why are people on the GASB still pondering questions like that ? Isn't the answer obvious to them ?

I was also wondering if other notable people like David Walker were present. AB
-----------------
My answer to AB is:

Dear AB:

Thank you for your interest in this important matter.

The following is a quote from our “Truth About Balanced Budgets: A 50 State Study” –

The funding and management mechanism that evolved from this history is inadequate to ensure an ongoing program of high-quality governmental accounting standards and has raised questions about its ability to remain independent (from) its donors. On October 30, 2007 Arthur Levitt, former SEC chairman, urged the entire accounting standards setting process be reconstituted to serve the investing public rather than corporate and government constituent groups. He advocated that GASB members be chosen based on who is “best qualified” to serve, rather than based on recommendations from constituent groups.[ii] Levitt and others have also called for an independent source of funding for the GASB.

Like Arthur Levitt, the Institute is concerned about the GASB’s lack of independence from its governmental constituency. The independence issues may have caused some GASB members to lose sight of the desire to present information that could assess government accountability and sustainability. While we can’t read the minds of GASB members, we can suspect that the GASB’s lack of independence has directly led to major deficiencies in state and local government accounting standards.

-----------------
You can find this study at: http://www.truthinaccounting.org/news/listing_article.asp?section=451§ion2=489&page=455&CatID=3&ArticleSource=572

It was encouraging to have the American Institute for CPAs agree with our position that the liability should be recorded immediately. I was amazed that other people who testified could argue with a straight face that the liability should not be booked as a liability. It seems their vested interests prevent them from wanting to have the reality presented to the public.

As far as I know, David Walker was not there.

Please note that David Walker believes that Social Security and Medicare promises should not be recorded as liabilities on the federal balance sheet.

I would enjoy continuing this conversation, so please feel free to email or blog me any additional questions and comments you have.

Sheila

Hello again Sheila, Thank you for allowing me to inquire more about this subject. Reading your reply, I see the following statement: "It seems their vested interests prevent them from wanting to have the reality presented to the public" How could it possibly be in someone's interest that the public not be shown the reality ? Could you elaborate on that, for example trying to imagine and describe to me a scenario where it would benefit someone ? Personally I can't imagine such a situation...please enlighten me ! Please reply ! Thanks in advance, AB

Posted by AB on 9/10/2009 11:10:51 PM

How someone could have vested interests, so they would not want to show reality? Elected officials vested interests include getting re-elected. If the public was shown the reality, then the public could be upset with the elected officials that they put us into so much debt. To promote accountability forty nine out of fifty states require balanced budgets. But it all depends on how you count. If you can hide costs, then you can offer government services and benefits without having to pay for them. To pay for the costs and keep your budget balanced, the elected officials would have to enact corresponding taxes. One former Treasury official stated, “Politicians should not have the pleasure of spending (getting votes) without the pain of taxing (losing votes). We need that accountability to ensure that spending is justified—that the taxpayers are willing to pay for it—and that there is a discipline over Washington’s reallocation of the nation’s economic resources.” This link can be averted by hiding costs that have to be paid in the future. Governmental employees’ vested interests in getting as many benefits as possible. By not showing reality the costs of these benefits can be hidden. Once these benefits are promised they cannot be taken away. If the costs were included in the balanced budget calculation then taxes might have to be increased or government benefits and services might have to be cut. Another quote from our 50 State Study: Unfortunately, state and local government officials determined long ago that if they paid their employees more salaries there would be an impact on their current budgets and financial statements. The cash basis method used to calculate state budgets allows governmental officials to use deferred compensation gimmicks to avoid such negative impacts and keep their workforces happy. So, during labor negotiations, governmental officials just keep promising employees more pension and retiree health care benefits. None of these deferred costs appeared on the budget so politicians do not have to cut other programs to provide for these benefits, nor do they have to raise taxes to fund these future promises.

Posted by Sheila Weinberg on 9/10/2009 11:16:26 PM

Are you sure your opinion on David Walker's stance on federal balance sheet liabilities are correct ? First take a look at these two youtube videos: http://www.youtube.com/watch?v=I-16u9x3tfE http://www.youtube.com/watch?v=mLr6dR_LmIM&feature=PlayList&p=7983ADA12199CA27&playnext=1&playnext_from=PL&index=3 As you can see, I did my research and David Walker specifically mentions (in the preceding videos) Medicare and Social Security liabilities as the main budgetary problems that the US goverment will be facing around 2040. I would also like to mention that his opinions revealed in the movie I.O.U.S.A. (which I am sure you have seen) also go in the same direction. How could he believe at the same time that (according to you) these two liabilities should not be recorded on the federal balance sheet ? That makes no sense to me ! Particularly since he's on a mission to inform the public... AB

Posted by AB on 9/10/2009 11:21:59 PM

You can read David Walker’s testimony on whether Social Security & Medicare promises should be reported as liabilities on the balance sheet. http://fasab.gov/pdffiles/si61.pdf This letter says that only the amount that is currently “due and payable” should be recorded as a liability. See GAO’s rational on page 3 of this document. I look forward to continuing this conversation.

Posted by Sheila Weinberg on 9/11/2009 3:26:36 AM

After reading all of the document, I can't help but notice that one of the reason they are against including Medicare and S.S. as liabilities, is because they could change the benefits in the future. In other words, "if we don't have enough money later, don't count on your benefits". That is outrageous. Politicians promise one thing and on the other hand, don't offer any guarantee OR INVESTMENTS for those benefits. I see your point when you were explaining the "bested interests" of some people. As for David Walker, well... from what I can see, he is trying to reach the same goal as you (information of the policy makers and the public) but not by using the same method. His "alternative view" (to which he refers to in the document) about sustainability does point out the huge problem ahead though. Quote: "The alternative view provides full accountability and disclosure to the American public of the fiscal condition of the social insurance programs"... That part seemed quite important to me, whether that method can achieve the same results as what you are suggesting remains to be seen... Nevertheless, his "fiscal awareness tour" is a valiant effort.

Posted by AB on 9/11/2009 3:30:21 AM

Obviously, things can get real confusing in this discussion. "The alternative view" Walker is discussing would only put the benefits that are "due and payable" on the balance sheet. Therefore, in my view, the alternative view would NOT provide "full accountability and disclosure to the American public of the fiscal condition of the social insurance programs". Walker's efforts to inform the public about the fiscal challenges is commendable and valuable. Walker and the Institute for Truth in Accounting are working toward the same goal of educating the public. I have the utmost respect for him and have met with him several times. I believe the first step in getting people to understand the country's financial condition is to tell them the truth. One way to do this is to have the true liabilities reported on federal balance sheet. The costs of these liabilities also must be included in the budget process. I do not believe that the government had a "surplus" in the late 1990's. The costs did not include the costs incurred in relation to social security and medicare benefits. If those deferred costs were reported then we were running a deficit of 1/2 of a trillion to $2 trillion.

Posted by Sheila Weinberg on 9/11/2009 3:42:40 AM