U.S. state and local governments will have to report billions of dollars in health-care liabilities on their balance sheets under an accounting change aimed at improving disclosure of retiree benefits.
As a result of rules approved Tuesday by the Governmental Accounting Standards Board, municipalities and states will have to record the cost of health insurance and other benefits besides pensions in financial statements, the board said in a statement. Such costs are currently disclosed only in footnotes. (Darrell Preston, BloombergBusiness, June 2, 2015)
This great news is the result of years of grinding out the issue. State and local authorities have had to carry pension liabilities on their balance sheets for years now. Allowing them to keep retiree health liabilities offside biased negotiations in favor of health benefits because they could be more easily disguised from municipal bond investors and taxpayers.
This is surely a major cause of inflated health benefits for current government workers as well (which we’ve discussed here and here.) The new rule will dampen these benefits, which should help keep health costs down.
I agree that this is a very positive step. However, bond investors may have to demand higher interest rates than they did previously for state and local governments to absorb the message that these retiree health insurance promises need to be reined in. Better late than never.