DALLAS — Texas appears to be softening its opposition to the Government Accounting Standards Board’s rule on reporting future retiree health benefits, according to a new bill advancing in the Legislature.
Under a substitute version of HB 2365 sponsored by Rep. Vicki Truitt, R-Southlake, governments in the state would be allowed to follow GASB’s rule 45 that requires projections of future health care benefits for retirees. But state and local jurisdictions would also be allowed to opt out of GASB 45 using an alternate accounting method.
The new measure, approved by the House Pensions and Investments Committee, also allows the comptroller to create a post-employment benefits trust fund for teachers and employees of the state and university systems.
Texas’s health care obligation to retirees over the next 10 years is estimated at $50 billion, according to the Legislative Budget Board.
Under the previous measure, Texas would have claimed a wholesale exemption from GASB 45 at all levels of government.
“It’s a major change,” said Michael Granof, professor of accounting at the University of Texas McCombs School of Business. “It no longer prohibits a government from adopting 45, which means governments have a choice. That means the market will decide. And if it’s a choice that will affect their credit rating, they will go with GASB 45.”
While governments are allowed to report the estimated cost of future retiree health benefits, the new measure allows them to do so without actuarial analysis. Although local governments would still run the risk of an adverse opinion from outside auditors without reporting future obligations, the governments could cite the new state law if it is approved by the Legislature and signed by the governor, Granof said.
Travis County auditor Susan Spataro, a leading opponent of the GASB 45 rule, said her goal in backing the legislation is to avoid adverse audits and the appearance that her county has a legal liability for future retiree health costs.
“We’re not trying to hide anything,” Spataro said. “We’re not trying to be less transparent. We’re not trying to sneak around anyone.”
Under Texas law, all future costs for health benefits are allocated on a year-by-year basis. If Travis County were to begin making annual contributions toward future retiree health benefits, the entry would show up as an $88 million liability, Spataro said.
“We would have an $88 million liability, and we would look insolvent,” she said. “And nothing could be further from the truth.”
Spataro, who has also taught at the University of Texas at Austin, said she and Granof differ on GASB 45 because Granof approaches the issue as an academic instead of someone who must answer to county commissioners and taxpayers.
To avoid the appearance of being insolvent with the future costs listed as a liability, the county would have to raise property taxes 16%, Spataro said.
Truitt said she introduced her bill, a companion to a Senate measure from Sen. Robert Duncan, R-Lubbock, after hearing concerns from county officials struggling with the implications of reporting the obligations.
While the new bill allows more flexibility for local governments, Granof said it is unnecessary.
“It still makes Texas look silly,” he said. “We have a bunch of legislators setting accounting standards. The next thing you know, they’ll be setting standards for the medical profession.”
