US Chamber of Commerce Looks for Solutions to Looming States' Pension Crises
The U.S. Chamber of Commerce's National Chamber Foundation and the U.S. Chamber's Labor, Immigration & Employee Benefits division co-sponsored an event on July 30th underscoring growing budgetary pressures state and local governments are experiencing. The current economic downturn is underscoring the increasing retirement cost included in government budgets, due to increased pension benefits.
Among the participants at the event were David M. Walker, President and CEO of the Peter G. Peterson Foundation and Sheila Weinberg, Founder and CEO of the Institute for Truth in Accounting. Panelists discussed where many states currently stand financially; the risks these massive deficits pose to businesses and taxpayers; and possible solutions state pension funds may turn to, including lessons learned from private sector pension systems.
Weinberg stated 'We are not told all the facts about the billions of dollars of retirement benefits accumulated by elected officials. Taxpayers now have billions of dollars of unfunded retirement liabilities. Citizens will have to face higher taxes, less services or a combination of the two. Retirees may have to take unprecedented benefit cuts.' Weinberg sees a change in the budget process as the biggest solution to this problem.
C-SPAN has stored Weinberg's presentation in their library. To viewed go to the 16:00 mark of this video.
Weinberg made similar presentations on this topic during June and July, including a speech to the Americans for Prosperity (AFP) State Directors at their July 22 meeting in Las Vegas. At the AFP, Weinberg presented preliminary results of the Institute's Phase II of 'Truth in Balanced Budgets: A Fifty State Study'.
Institute Continues 50 State Study On Budgeting Practices
The Institute for Truth in Accounting studied the financial reporting practices of all fifty states over three fiscal years. The results of that effort were published in February 2009 as 'The Truth in Balanced Budgets: A Fifty State Study'. Our findings showed that a significant portion of the states are using budgetary and accounting schemes that tend to camouflage the states' true spending levels and financial conditions.
The Institute is now working on Phase II of the 50 State Study, which is designed to bring to light each state's financial condition, including the massive debts owed to public pension funds and retirement benefit plans. A 'Financial State of the State' will be issued, once the analysis of each state's financial report and its retirement systems' actuarial reports is complete. Reporters and legislators in the states that have been complete are finding the information derived from this study useful during current economic conditions.
Five interns who are recent graduates of the Loyola University of Chicago B.B.A. program in Accounting are working with Institute staff on this study. In 2009, Business Week magazine ranked Loyola University School of Business #1 in the country in the specialty area of Ethics.
Institute Study Highlights Need for Transparency in Illinois' Budget Process
In September, The Institute will issue a new, major publication which examines the transparency of Illinois' annual budgeting process. Following up on the Institute's earlier 'The Truth about Balanced Budgets: A Fifty State Study', this new work concentrates on the budget process and its shortcomings here in our home state.
The need for this study became evident when the earlier report found that 49 of the 50 states have some form of constitutional or statutory 'balanced budget requirement' yet many we accumulating debt. Illinois has the requirement and every year, our legislators and governor tell Illinoisans that they given us another balanced budget. Despite the requirement and their assurances that they have spent no more than funds available, Illinois' financial position becomes worse every year. We wondered how a budget could be balanced yet create more debt.
Initial research showed the culprits to be an elastic definition of 'funds available' and the use of cash basis method used to calculate the budget. It appears that the governor and the legislature have very different ideas of what 'funds available' means than do most state residents. To determine what revenue and expenses should be included in the balanced budget calculation, the Institute convened a distinguished panel of civic groups, think tanks, academics and other organizations to create a consensus definition of a balanced budget. The two major finding of the panel were that borrowed money should not be considered 'available' and that the full current costs of pensions should be recognized in the year they are earned.
Guided by the findings of the consensus panel, a recalculation of the FY2011 state budget projects a staggering $13 billion shortfall in the state's checkbook.
The Institute is organizing sessions with interested Illinois legislators to educate them about the way to calculate the budget, so the true revenue and expenses are considered and the long term financial consequences of the financial decisions are understood.
Weinberg joins the AGA Financial Management Standards Board
In July, Sheila Weinberg was appointed to the Association of Government Accountants (AGA) Financial Management Standards Board. The mission of this Board is to improve the effectiveness and efficiency of accounting and auditing standards at all levels of government, and thus advance government accountability. The Association of Government Accountants is headquartered in Alexandria, VA.
The FMSB consists of 25 members with accounting and auditing backgrounds in government, academia and public accounting. The FMSB oversees all aspects of AGA's role in reviewing and responding to accounting and financial reporting standards proposed by the FASB, GASB, IASB, OMB and other organizations. The FMSB also responds to government auditing standards as proposed by the AICPA and the GAO.
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