The Senate Banking Committee should hold an urgently needed oversight hearing on developments at the Governmental Accounting Standards Board (GASB), which sets the accounting standards for state and local governments.
In recent years, GASB has embarked on projects that have led to the issuance of Exposure Drafts currently under board deliberation. These proposals would lead to a new concept statement and accounting standard. They would effectively reinforce, and attempt to establish an ill-founded conceptual basis for, unsound and deceptive accounting practices by state and local governments in the United States.
GASB’s proposals relate to financial statements for governmental funds. Longer story short, the proposals are for an oxymoron-ish “short-term financial resources measurement focus and accrual basis of accounting,” essentially a cash-basis mode of accounting that has enabled practices like borrowing money and underfunding pensions as means for “balanced budgets,” as many state and local governments have run up huge tabs on their taxpayers anyway.
By the standing rules of the United States Senate, the Senate Committee on Banking, Housing and Urban Affairs (Senate Banking Committee) has jurisdiction over “banks, banking and financial institutions,” “economic stabilization,” and “federal monetary policy, including the Federal Reserve.” The Senate Banking Committee has five subcommittees, including:
Economic Policy … with jurisdiction for “economic stabilization.” The Chair of this subcommittee is Sen. Elizabeth Warren (D-MA), and the Ranking Member is John Kennedy (R-LA).
Financial Institutions and Consumer Protection … with jurisdiction for banks and other financial institutions. The Chairman of this subcommittee is Sen. Ralph Warnock (D-GA) and the Ranking Member is Sen. Thom Tillis (R-NC).
Securities, Insurance and Investment … with jurisdiction for government securities, the SEC, and accounting standards. The Chairman of this committee is Sen. Robert Menendez (D-NJ) and the Ranking Member is Sen. Tim Scott (R-SC).
The issues calling for intensified Senate oversight of GASB relate to all three of these realms of jurisdiction, suggesting that a full Senate Banking Committee hearing could be warranted. Alternatively, it could be in one of these subcommittees.
For the Economic Policy subcommittee, the issues matter for economic stabilization, particularly in light of the recent massive federal aid for many state and local governments that were ill-prepared for the pandemic and economic disruptions from government lockdowns.
For the Financial Institutions and Consumer Protection subcommittee, the issues matter for banking and other financial institutions, particularly in light of the rapid growth in bank lending to state and local governments in the decade before the arrival of the pandemic.
For the Securities, Insurance, and Investment subcommittee, the issues matter for government securities (including municipal government securities), the SEC, and accounting standards, particularly as the U.S. Congress has delegated responsibility for generally accepted accounting principles to the SEC, which in turn has delegated authority through the Financial Accounting Foundation to the Financial Accounting Standards Board (FASB) and to the GASB.
Early last year, a subcommittee of the Financial Services Committee of the U.S. House of Representatives held an oversight hearing for issues at FASB. Given the gravity of the issues underneath the rock that GASB has rolled over, it’s time for Congress to oversee them today.