Accounting change could affect govt. retiree benefits

A change in accounting procedures will force state and local governments to calculate the actual and projected costs of health benefits for their retirees. The rule change by the Government Accounting Standards Board (GASB) takes effect at the end of this year.

The Washington Post reports that GASB rules do not carry the weight of law, but are considered an important measure of financial health by Wall Street analysts and bond rating agencies.

That means the rule is likely to have far-reaching consequences, finance experts and local officials say. Governments, school boards and other public bodies throughout the country will be compelled to report what they owe retirees for health care over the next 30 years -- and to begin setting aside additional millions of dollars to pay for it.

It will take two to three years for the full effects of GASB 45, as the rule is known, to play out. But officials say it could lead to reduced benefits for retirees. Governments that don't have a plan for fully funding their obligations could have their bonds downgraded, limiting their ability to borrow at favorable rates and costing taxpayers millions in additional interest payments for new schools, roads and other capital improvements.

"It's a big deal, and it will have a big impact on our financial statements," said Gail Francis, deputy finance director for Prince George's County.

Parry Young, public finance director for Standard & Poor's Corp., said many governments will be able to absorb the effects of GASB 45 with relative ease. Some, he warned, especially those providing extensive health benefits, will face "painful decisions," forced to choose between funding critical services now and investing in needs that will have to be met decades down the road.

An official with the American Federation of State, County and Municipal Employees (AFSCME) says state and local governments will likely feel the pressure to reduce retiree health benefits as a means of keeping the projected costs from affecting their bond ratings.