Published: August 10, 2008 01:30 am      

New accounting policy major challenge

Government agencies must show what they’ll eventually have to pay for retirees’ benefits like a debt before the employee has retired

FAIRMONT — A new accounting policy is causing headaches for agencies all over the state.

Several years ago, the federal Governmental Accounting Standards Board released Policy 45. Basically, every governmental entity in every state, county and municipality must adopt the measure, so it literally effects every citizen nationwide.

GASB 45 requires governments to show what they’ll eventually have to pay for retirees’ benefits like a debt before the employee has retired. The benefits included in the measure are called “Other Post-employment Benefits” (OPEB).

Because the liability of future retirees’ benefits is reported like a debt, the requirement is forcing municipalities, counties and schools systems across the state to adjust their budgets and attempt to set aside funds they may need in the future.

In West Virginia, the Public Employees Insurance Agency provides health benefits to state and municipal employees, as well as some nonprofit groups.

This method of reporting wasn’t required before. Most governments were on the “pay-as-you-go” plan, meaning they paid PEIA monthly for the retirees they currently had.

Now, entities must record the expense and, eventually, they’ll have to pay the bill.

In the case of the Marion County Commission, that expense could reach $300,000 this year, said Kris Cinalli, commission office manager.

“We offer PEIA and have about 165 employees,” Cinalli said. “Our liability is about $250,000 yearly, maybe as high as $300,000.”

Right now, the commission must list that as a liability on its financial statements, but not pay the bill. Instead, they’re socking money into a “financial stabilization fund” to pay it when the bill comes due.

“This is not a crisis for us yet,” Cinalli said.

The commission has reported OPEB liability on its financial statements for fiscal year 2008, which ended June 30.

The City of Fairmont also reported the OPEB liability for fiscal year 2008.

Eileen Layman, finance director for the City of Fairmont, said she began recording OPEB expenses in July 2007. The city also opened a special bank account to deposit the payments in, so they can pay PEIA.

“PEIA has been billing us,” Layman said. “We were advised to dispute the invoice and send it back. There’s just so many unanswered questions.”

Layman said the PEIA statements have been separated, with part going to fund current retirees and a supplement going toward future retirees’ benefits.

In fiscal year 2008, the City of Fairmont reported $285,000 in OPEB benefits. Since PEIA used part of its own funds to offset the local governments’ payments in that year, the liability will be higher next year, Layman said. She expects that figure to be about $442,000.

That’s definitely putting a strain in the city’s budget, Layman said.

“We didn’t cut services, but we couldn’t give pay raises for fiscal year 2008,” Layman said. “It’s put a strain on funds. We’re moving funds around, so we can’t allocate as much to projects. Discretionary spending has to be reduced.”

Jayson Haught, chief financial officer of PEIA, said he first heard of GASB 45 and OPEB in 2001. PEIA began working on implementation in 2004.

“Everyone wants to make sure retirees have good health-care benefits, but we also need to make sure public employers are aware of the costs. That’s what GASB 45 has done,” Haught said.

Now, government entities are left with two options, Haught said.

“If we want the benefits, we need to start funding them,” he said. “If we don’t, we need to figure out what (the benefits) are going to be. What we need to have is a good combination of benefits and affordability.”

Lara Ramsburg, spokeswoman for Gov. Joe Manchin, said the governor’s office is working with PEIA to see how to report the debt with a notation explaining the liability is required as part of federal regulations. That notation would explain the liability doesn’t affect the real operating costs of the entity.

Basically, if agencies put a note on their financial statements, it will be understood that the debt isn’t new and doesn’t reflect on how well the government entity takes care of taxpayers’ money.

She said the governor is working with agencies to explain it’s a change on the federal level.

“We’re all aware of the new bookkeeping challenges when it comes to OPEB,” Ramsburg said. “We’re working on the state level to address it as quickly as we can. I do know it’s a topic that’s discussed here almost every day. We’re paying attention and trying our very best.

“It’s not that something drastic happened; (governments) just have to list something they never had to before.”

E-mail Katie Wilson at kwilson@timeswv.com.