The Government Accounting Standards Board doesn’t have as much throw-weight in Sacramento as the public employee unions when it comes to pension reform. But the new rules the board approved Monday should make Democrats in the Legislature a lot more receptive to Gov. Jerry Brown’s reform proposals than they have been.
The rules overhaul how public pension funds report on their financial health, requiring employers (i.e., local governments) to recognize costs earlier and, in certain cases, make more conservative projections of future fund earnings. The changes will make it easier for the public to see when a pension plan is underfunded, and by how much. Another goal is to reveal the assumptions that employers use when making projections about a fund’s growth, so the public can tell who’s being realistic and who isn’t.
The GASB can’t tell governments what benefits to pay or how much to contribute to their plans. Instead, all it can do is tell cities, counties and states how to account for their pension plans in the financial disclosures that the bond market and investors demand. Nevertheless, barring a sharp improvement on Wall Street, those disclosures are likely to be unnerving.
According to a Boston College study, the California public employee pension fund (CalPERS) was 83% funded in 2010 under the old accounting rules, but only 65% funded under the new rules. The state retirement fund for teachers (CalSTRS), which was 71% funded in 2010, would have dropped to 60% or, possibly, 41% if the new rules had been in place.
The new standards go into effect in two years. Brown’s pension reform plan, meanwhile, will die in two months unless the Legislature acts on it before adjourning. Democratic leaders have shunted the issue to a conference committee, which held months of public hearings but has not offered any formal proposals. Republicans, who have embraced Brown’s plan, tried to force a vote in the Senate last week on the proposals, only to be blocked by Democrats.
The majority party may shrug off the GASB’s move, considering how long it will take for the new standards to kick in. Besides, the courts have tied the hands of pension reformers, barring major changes to the plans for workers who’ve already been hired. So Brown’s plan wouldn’t save much money for the state in the short run.
Nevertheless, the GASB has raised the stakes for Democrats, if not now, then two years down the road. Unless the funds improve dramatically with the help of a sustained bull market, their financial picture is likely to be noticeably bleaker under the new standards than it is now. You’d think Democrats would want to be able to tell voters that they’ve taken real steps to make things better.