PICKENS — The Governmental Accounting Standards Board has recently revised its reporting rules for state, county and municipality governments concerning the funding of employee pensions and for some entities the fallout could be negative.
Much like personal credit ratings, nations, states and towns are evaluated for credit ratings as well through a combination of factors such as financials, balance sheets, and debt ratios.
This small change in the accounting practices could have far reaching effects. Those effects are still on the horizon and impossible to predict for local governments such as the cities of Easley and Pickens or Pickens County itself, all based on the unfunded portion of the pension plan itself.
For example, the state of South Carolina ranks number 25 out of the 50 states, funding the state pension plan to approximately 69 percent and leaving 31 percent unfunded. In previous years the 31 percent left unfunded was not accountable, but under the new guidelines that figure must be listed as debt on the balance sheet, passed through to local government.
What effect does shifting numbers not counted before to the debt side of the balance sheet mean locally? At this point no one is absolutely sure.
“At this point it may or may not affect the county’s credit rating, we just don’t know for sure,” interim County Administrator and Finance Director Ralph Guardino said. “Our financial statements and balance sheets were taken into account in the last audit and the credit rating was kept at stable, and I don’t know at this point it would necessarily change.”
You may ask why a state or local government would need a credit rating, but that rating is taken into account when bonds are issued or the body must borrow to meet budgetary requirements. Traditionally Pickens County is fiscally conservative and this has not been an issue in the past.
“Right now we are trying to become familiar with the changes the GASB has made and trying to determine what it will mean to the city,” Easley City Administrator Fox Simons said. “We don’t have a say in the contribution portion, that’s dictated by the state and at this point we have yet to hear what the state’s requirements are going to be.”
One possible result of the change, beyond affecting credit ratings and solvency of some local and state governments, could be the disappearance of the pension plan at the local level. Guardino didn’t suggest as much, but if the result of the GASB changes is detrimental to local government the leap isn’t a big one.
“At the state level providing the pension plan for employees is required and all those employed by the state get the benefit of it,” he said. “At the county or city level it’s a choice to participate and some of these governments choose to find their own retirement option for their employees.”
According to Guardino the earliest some clarification will be forthcoming from the state to answer some of the questions local officials have will be October of this year when a conference is scheduled to be held statewide.
Simons has a question he would like to see answered by the state where this new potential financial liability is concerned.
“When I or any employee retires they will get their check directly from the state, not from the city of Easley or Pickens County, so why is it the city of Easley has to list this on our balance sheet making it Easley’s liability instead of the state itself?”