By Gene Meyer | Kansas Reporter
FAIRWAY — The Governmental Accounting Standards Board approved some tough new public pension accounting rules Monday.
Well, about those … .
Most Kansas schools and many Kansas communities won’t have to follow them.
State legislators 30 years ago passed legislation allowing local governments to opt out of so-called Generally Accepted Accounting Principles standards — to which GASB rules apply — if they met certain conditions.
Kansas law allows local governments to use something more elementary, called cash basis accounting, if their financial affairs are relatively simple.
Cash basis accounting is what most households do when tracking money. Some goes in, and some goes out.
Accrual accounting, which the GASB standards call for, is more complicated. It counts money coming in or going out, but for a specific purpose, even if that takes longer than a year to happen. Accrual accounting is a more accurate way to track long-term or complex commitments, such as pension funding, accountants say.
Many local Kansas governments go the easier route.
All of Kansas’ 289 public school districts routinely track their financial affairs with cash basis accounting, said Dale Dennis, Kansas deputy education commissioner for finance.
“That’s because the state pays the school districts’ employees’ pensions,” Dennis said. “The schools don’t pay a cent.”
A half dozen of Kansas’ 105 counties, and 14 percent of its 626 cities, follow GAAP standards, said Roger Basinger, municipal accounting chief in the Kansas Department of Administration, the agency to which local governments apply to use the simpler system.
GASB’s new pension reporting standards will still apply to pensions for teachers, police officers, firefighters or other local government workers in those places, said John Pappas, a Governmental Accounting Standards Board spokesman in Norwalk.
That’s because the state, and specifically the Kansas Public Employees Retirement System, actually run the retirement plan for those workers, Pappas said, “and the new rules do apply to the state plan.”
So how will the new rules change the pension fund reports for KPERS, last estimated to be $8.3 billion short of what’s needed to pay all its future pension obligations?
“We’re still working that out,” Alan Conroy, the pension fund’s executive director, said Tuesday, “but I’m guessing the unfunded liability number will probably be larger rather than smaller.”
KPERS officials Tuesday were still parsing details of the changes, and will start including the new adjustments in financial reports as soon as possible, Conroy said.
Pension analysts at the Pew Center for the States last week calculated that KPERS’ unfunded pension bill rose to nearly $22 billion in 2010.
The Washington, D.C. , policy researchers say the old accounting rules, which GASB is changing, understated earlier market losses that hit all pension funds in 2008 and overstated KPERS potential investment returns in the future.
The new rules address both of those issues, said Eileen Norcross, a senior research fellow at George Mason University’s Mercatus Center in Arlington, Va.
The new rules require KPERS and other funds to presume lower rates of return for some of their chanciest investments and eliminate a practice known as smoothing, she said. Smoothing is an accounting tactic that allows users to spread the impact of unusually big market changes over more than one year to help track long-term trends.
Norcross said she could not estimate how the recalculations might change KPERS’ liability.
“The new numbers will reveal more, but they won’t fix the problem,” Norcross predicted. “In reality, a liability is a liability, whatever the amount.”