Ivan Osorio writes, "Why do state and local governments engage in dubious pension fund accounting practices? Because they can.
"That sums up a sound critique of the Governmental Accounting Standards Board (GASB) by Stanford public policy professor David Crane. As he explains in a recent op-ed in Medium:
"GASB doesn’t stop state and local governments from treating borrowings as revenues, avoiding cost recognition by simply not paying expenses, or claiming balanced budgets that often are nothing of the sort.
"The most costly example takes place in pension accounting. When pension promises are made, GASB allows state and local governments to value those promises at a fraction of their real value. Today, state and local governments use GASB rules to value their unfunded pension liabilities at just one quarter of the $4 trillion the same unfunded liabilities are valued by the Federal Reserve Bank. Put another way, GASB’s rules are today enabling state and local governments to hide $3 trillion of unfunded liabilities.
"The incentive for state and local officials to hide liabilities is clear. By deferring compensation, in the form of pensions, and pushing those costs well into the future, politicians can gain favor with government employee unions, which are major political players and donors, while passing on the pain of paying for said compensation on to their successors."