Texans have always been an independent bunch, but many Lone Star CPAs think that their state legislature is going too far when it tries to write off Statement 45 of the Governmental Accounting Standards Board as irrelevant.State Senator Robert Duncan and State Representative Vicki Truitt, both Republicans, introduced alternative bills in their respective financial committees that would allow, but not require, governmental entities to issue financial statements that do not comply with Statement 45. The bills define an alternative method of accounting that would not record projected post-retirement benefits as a liability.

GASB 45 requires governmental entities to report as liabilities the estimated future cost of providing post-employment benefits other than pensions, most of which tend to be health care.

"It's our view, after talking to various experts, that GASB 45 doesn't accurately reflect how Texas operates with regard to its post-retirement benefits," Duncan said. "We are a pay-as-you-go state. We don't recognize [those benefits] as liabilities, because they're not. We manage them very well. We adjust benefits routinely, as necessary, to make sure they balance."

The state's legislative budget board estimated that if governmental entities don't start setting aside funds for these costs, the total liability over the next 10 years could exceed $50 billion.

That's a lot to suddenly dump on the books, but failure to do so, whether the legislature passes a bill or not, will result in qualified audit reports, negatively affecting state and municipal credit ratings and the value of their bonds.

GASB Chairman Robert Attmore said that he doesn't think the situation in Texas is any different from those of other states. "I don't understand the concerns that Texas folks are raising," he said. "What we're doing is pretty straightforward, saying that health care benefits are provided to retirees, so we are asking all governments to change from the pay-as-you-go cash-basis of accounting to accrual accounting, and to record expenses related to those benefits that will admittedly be paid sometime in the future, but to record them as they are being earned, as employees are providing services."

R.J. DeSilva, a spokesperson for Texas State Comptroller Susan Combs, explained that the comptroller's office supported the bills. "The state comptroller believes that post-employment benefits should be reported not in financial statements, but in a supplemental statement," he said, and pointed out that the state constitution prohibits funding these benefits for more than two years at a time.

John Sharbaugh, executive director of the Texas Society of CPAs, testified at a legislative hearing, where he explained the downside of any failure to comply with GASB standards. "We explained to them, look, do you understand, you can pass this legislation, but auditors are going to be giving qualified opinions when they issue their audit reports because GASB 45 is considered GAAP," he said. "That has caused them to pause a little bit. I don't think they liked that fact, and I think some of them are trying to figure out a way around it."

Sharbaugh said that the legislative move was essentially a political response to some county auditors and other governmental entities that did not want to have to follow the standard.

Others in Texas, Sharbaugh said, suspect that the bills are an attempt to persuade the board to revamp its standard, and they feared that if the board did not do so, the legislature might well move the bill forward.

Duncan and Truitt presented two main arguments for legislating Statement 45 into Texan irrelevance. One was that the state had no obligation - or even authority - to deliver the promised benefits beyond a two-year budgeting cycle. Another was that it is impossible to accurately project health care costs as far into the future as GASB requires.

Actuaries testified that they were able to make reasonable projections, and certain governmental finance officers said that they were already well prepared to calculate the liabilities.

No other states are known to be pursuing a similar move, but Texas CPAs are worried that their state may be taking the first step down a road to 50 states developing as many sets of accounting standards.

"We have a great concern about states choosing to develop their own standards," Sharbaugh explained. "That will create a chaotic environment for auditors, as well as for financial statements. We don't think that that's a good place to go, regardless of the particulars of this situation."

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