Sometimes state and city officials highlight that by including pension debt in Truth in Accounting’s “Money Needed to Pay Bills” calculation we are saying that this debt is currently due. These government officials argue that those benefits don’t need to be paid until far into the future.
I am currently reviewing the data that our researchers have accumulated for our Financial State of the Cities report, which will be released in January 2020. While reviewing the Columbus, Ohio financial report I came across the following wording that perfectly explains why we include pension debt in our “Money Needed to Pay Bills”:
The net pension liability reported on the statement of net position (similar to a corporate balance sheet) represents a liability to employees for pensions. Pensions are a component of exchange transactions-–between an employer and its employees—of salaries and benefits for employee services. Pensions are provided to an employee—on a deferred-payment basis—as part of the total compensation package offered by an employer for employee services each financial period. The obligation to sacrifice resources for pensions is a present obligation [emphasis added] because it was created as a result of employment exchanges that already have occurred.
Private companies must report and fund their employees’ pension plans as benefits are earned. So why are governments held to a different standard?