22 March 2007 Americas/United States Equity Research Accounting & Tax You Dropped a Bomb on Me, GASB Research Analysts ACCOUNTING David Zion, CFA, CPA 212 538 4837
[email protected] Uncovering $1.5 Trillion in Hidden OPEB Amit Varshney, FRM 212 538 8049 Liabilities for State and Local Governments
[email protected] Estimated State Government OPEB Underfunding WA ME MT ND OR MN VT NH ID WI NY MA SD MI RI WY CT PA IA NE NJ OH UT DE NV IN DC IL WV MD CA CO VA KS MO KY TN NC AZ OK NM AR SC Over $10 Billion GA MS AL Between $1 Billion and $10 Billion Less than $1 Billion TX LA AK FL HI ■ There’s a new accounting rule in town that’s beginning to uncover some very large, hidden liabilities of state and local governments. It’s GASB 45, which drastically changes the accounting for Other Postemployment Benefits or OPEB (e.g., retiree healthcare, life insurance, etc.), moving it from a cash (i.e., pay-as-you-go) basis to an accrual basis. ■ The rule, issued by the Governmental Accounting Standards Board (GASB) back in 2004, goes into effect starting this year. What’s being revealed is not too pretty: we estimate over $1.5 trillion in unfunded OPEB liabilities. It’s not as if GASB 45 is creating this obligation. (State and local governments did that all by themselves.) However, GASB 45 does highlight another large legacy obligation where a promise made to U.S. workers is going to be hard to keep, presenting difficult challenges for the U.S.