Norwalk, Conn.-With citizens increasingly concerned, if not outraged, about soaring national deficits, the Governmental Accounting Standards Board has added to its agenda a project on economic condition reporting and fiscal sustainability.
GASB project manager Lisa R. Parker said that moving the project to the active agenda did not necessarily mean that the board sees a need for a standard in this area. The need will be determined as the board explores definitions of economic condition reporting and three components that the board has tentatively decided should be part of it: financial position, fiscal capacity and service capacity.
"We're really going to dissect the major issues that surround fiscal sustainability before we even begin to have any discussions around what, if anything, a standard might look like," explained Parker.
Depending on the result of the deliberations, Parker said, the board might decide to move toward merely suggested guidelines, or it could go so far as to require a new basic financial statement.
The board decided to take on the project after staff research determined that users of governmental financial information see a need for new kinds of information, including indications of how a government arrived at its current condition and how that relates to assessing its future financial viability.
Parker revealed that the board also is reacting to widespread citizen calls for more transparency and accountability at all levels of government.
"Considering the current economic downturn, which has created a growing national concern for fiscal sustainability issues at the federal level, as well as state and local government levels, this appears to be an especially appropriate time for the board to consider the issue of economic condition and fiscal sustainability," she said.
The project comes on the heels of the Federal Accounting Standards Advisory Board's Statement 36, on reporting comprehensive long-term fiscal projections of the federal government. It focuses on budget and services. The GASB project is likely to go further by looking at new areas of information.
Though GASB has not gathered information on the financial difficulties of state and local governments, Chairman Robert Attmore said that the more information that is provided on this issue at all levels of government, and the more we raise the awareness of a situation before it worsens, the better policymakers will be able to consider options and make decisions.
The ongoing research on economic condition reporting builds on the issuance of Statement 44, on the statistical section of financial reports. The scope of that statement was limited to existing categories in the statistical section. The current project is expected to expand that scope to address additional issues that users have identified as important.
Parker emphasized that the project may involve projections, but it is not about predictions.
"This project is not about predicting the future," she said. "Although the GASB will consider the potential need for projections based on current fiscal policy, the project is expected to focus on information that users need to assess fiscal sustainability and economic condition."
While it's too soon to know the direction the board may take - deliberations are not due to begin until August - research identified eight areas where users would like to see more information.
Five were no surprise to the board's researchers: the ability of a particular government to raise sufficient future resources, to maintain or improve delivery of public services, to meet financial obligations, to achieve intergenerational equity, and to understand the impact of interdependencies between various governments.
One complaint among users was that though these kinds of information might exist under current standards, they aren't always easy to find.
"Although some of these things might individually be presented in various financial documents or other places, nowhere is it succinctly presented to allow them to make an assessment of fiscal sustainability," Parker explained.
Research uncovered three less expected components of information that users would find useful: the effects of the underlying economy, the potential effects of changing demographics, and political willingness to make decisions that will keep a government fiscally sound.
Risks associated with interdependencies between governments relate to the ways that one government is reliant on another - for example, a municipal government relying on revenues and programs provided by state and local governments. Such funding and services can change, impacting the fiscal stress on the state.
Noting that the project is one well worth pursuing, Massachusetts deputy comptroller Eric Berman reiterated the importance of linking these interdependencies to economic condition.
"State and local governments have been getting pneumonia for the last few years, and it was only the federal stimulus funds that kept some states propped up to where they are," he said. "Economic condition reporting would go a long way to show that interdependency of local governments on state governments and states on the federal government."
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