WASHINGTON — Three key Republicans in the House of Representatives introduced a bill Thursday that would impose punitive action on any state or locality with a public pension fund that fails to file annual reports to the U.S. Treasury Department that adhere to a uniform set of accounting standards.
The bill appears to be another sign that the GOP takeover of the House is likely to lead to a more adversarial relationship between lawmakers and states and local governments that issue municipal bonds.
Introduced by Wisconsin Rep. Paul Ryan and Californian Reps. Darrell Issa and Devin Nunes, the Public Employee Pension Transparency Act also would preclude the federal government from bailing out any state or locality overwhelmed with pension liabilities. Unfunded public pension fund liabilities have increased dramatically amid investment losses that have shrunk fund-asset values.
“We need to ensure that state and local governments are accurate and honest in detailing their financial liabilities, including the cost of pension plans for public employees,” Ryan, a Wisconsin representative who is the incoming House Budget Committee chairman, said in a press release.
Issa is the incoming chairman of the House Oversight and Government Reform Committee and Nunes sits on the Ways and Means Committee.
Specifically, the bill would require pension funds to disclose their own internal assumptions for determining the size of their liabilities. But it would also mandate that they determine their funding levels based on a much more conservative set of benchmarks determined by Treasury bond rates, which the bill deems more “realistic.”
The governments that fail to file such reports to the Treasury would be unable to issue new tax-exempt debt or receive subsidy payments from the federal government on taxable debt like Build America Bonds.
The bill could foreshadow Republican attempts to significantly boost regulation of the muni market. It comes as Spencer Bachus, R-Ala., is the frontrunner to become the chairman of the House Financial Services Committee. Bachus has repeatedly suggested he would introduce legislation to repeal the so-called Tower amendment, which restricts the Securities and Exchange Commission from collecting offering documents prior to bond sales.
Issuer groups were quick to pan the pension legislation, saying that state and local accounting principles should be left to the Governmental Accounting Standards Board, not Congress. GASB is in the midst of writing a new set of standards for pension accounting.
“It’s GASB’s job to promulgate generally accepted accounting principles for states and localities,” said Kinney Poynter, executive director of the National Association of State Auditors, Comptrollers and Treasurers. “And GASB should be independent, including independent from the federal government.”
One bond attorney said the proposal is, if nothing else, superfluous because municipal issuers already are liable under the antifraud provisions of the securities laws for disclosure documents that contain material misstatements or omissions, including for their public pension funds and their retiree health-care benefits.
“The concept of the securities laws is that you have to provide full and fair disclosure and then let investors reading the offering documents make their judgement based on that disclosure,” the attorney said. “But this proposal goes much further than that and requires issuers to make certain assumptions in their analysis.”
Jeff Esser, the executive director of the Government Finance Officers Association, said the bill is “based on ridiculous assumptions that are contrary to the facts of how public pension plans have performed.”
He noted that statistics from the National Association of State Retirement Administrators show that for the 25-year period ending Dec. 31, 2009, the average rate of return for the top 100 pension funds was 9.25%, which was in excess of the median assumed rate of return of 8%.
Though Esser acknowledged that conservative taxpayer groups like Grover Norquist’s Americans for Tax Reform backed the proposal, he said that “baffles me.”
“If you use very low rates of returns as assumptions, it means the taxpayers have to put up even more money and pay more taxes than they’re currently paying,” he said.