WASHINGTON — As the Government Accounting Standards Board prepares to hold its first public hearing Thursday on a proposal for state and local governments to provide five-year projections with their financial statements, groups are complaining the plan is costly, burdensome and outside GASB’s mission.
“We object in the strongest possible terms to GASB’s proposal,” five local government groups wrote in a letter to the board. “The budget document already provides what is needed and the highly subjective character of that information puts it beyond the scope of accounting and financial reporting.”
The groups, which included the Government Finance Officers Association and National League of Cities, called the proposal “unnecessary, confusing and beyond the legitimate scope of the board’s jurisdiction.”
The comment letter was one of more than 160 submitted by mid-March by state and local officials and industry groups.
GASB declined to comment on the letters.
The 59-page “preliminary views” document, which GASB said described as more of a concept release and not a formal proposal, was released in November under the title, “Economic Condition Reporting: Financial Projections.”
It would require state and local governments to provide five-year projections of cash inflows and outflows, with explanations of known fluctuations; financial obligations, including bonds, pensions, other post-employment benefits and long-term contracts, with explanations of fluctuations; and annual debt service payments, including principal and interest.
Governments also would have to provide a narrative discussion of the major intergovernmental service interdependencies that exist. If the plan is adopted by GASB, it would have to be followed by governments seeking clean audit opinions. Currently, governments generally provide a snapshot of their finances as of the date of their financial statements, as well as one-year retrospective overview in their operating statements.
The objective of the proposal is to “better enable taxpayers, bondholders, and other interested parties to assess a government’s financial health,” GASB said in a release.
Most state and local governments said GASB’s proposal would be too costly, putting strain on public sector finance departments, and that it should be voluntary. Other market participants questioned whether the proposal would provide benefits.
Jeff Esser, GFOA’s executive director, said that while the groups are supportive of state and local governments making financial projections, it has to be in the right context. It’s not the purpose of financial statements to be one-stop shopping, he said.
“Putting this type of speculative information in a government’s annual financial report could lead to several sets of other projections put out by the same government that would possibly conflict with each other,” he added.
The National Association of State Budget Officers “adamantly opposed” the proposal, warning “the requirements will usurp other forms of public finance accountability and oversight, resulting in diminished public financial management responsiveness.”
“The most recent downturn has also shown that financial operating conditions change in unpredictable ways. Economic condition reporting requirements will do little to shape the financial operating conditions that dictate government activities,” NASBO wrote.
Wisconsin Controller, Stephen Censky said the inclusion of projections of future financial activity in an audited comprehensive annual financial report is “inappropriate” and would create state administrative complexities and require additional time. Censky said that while GASB’s report is well intended, it would “incorporate ... a fundamentally different element into the process that bears the risk of diminishing the CAFR in its entirety.”
However, there were several proponents of the GASB proposal. The Securities and Industry Financial Markets Association submitted a 10-page letter, saying the proposal would “provide greater transparency in financial reporting.”
However, its support was not absolute. SIFMA recommended GASB take into consideration that implementation of the proposal could increase costs and delay the filing of financial reports. It recommended the board allow the financial projections and related narratives to be communicated as supplementary information to financial reports or CAFRs.
Danny McCullars, finance director for Anniston, Ala., called the proposal a “great idea.” He said if the proposal was implemented it could serve as a “tool of public policy.”
“Politicians like to make short-term and often short-sighted decisions,” McCullars wrote. “It could help prevent overreach in expending funds by the governing bodies, without accounting for the long-term consequences. It could and likely would make it easier for governing bodies to make proper revenue decisions based on long-term obligations, and take some political heat off.”
GASB will hold its first public hearings in Los Angeles on March 29 and New York on April 17. The board will then redeliberate, consider all of the stakeholder feedback and likely issue an exposure draft document, said John Pappas, GASB’s senior manager of media relations.