As the town meeting approaches, all the usual budget conflict resurfaces. Taxes are rising, some voters wonder where the money is going and others want to know why their favorite cause isn’t fully funded (school, town yard, youth center, etc. etc.). Unfortunately, no one seems to be questioning a glaring problem with the budget, which is that none of the reported financials reflect economic reality, only GASB accounting.
What’s GASB? GASB, the Government Accounting Standards Board, defines the rules controlling how government entities like Andover report their finances. These rules help hide a significant part of the town’s finances. Non-government entities like corporations must use the stricter FASB (Financial Accounting Standards Board) accounting rules that are far less tolerant of the accounting shenanigans used by Andover (and just about every other municipality in Massachusetts).
This problem is so huge that most people simply cannot believe the numbers. In July, Andover reported that its pension plan was only 49.7 percent funded, almost $97 million short of its cost. The accounting treatment valued the plan’s stocks and bonds at $96 million even though the market value is only $87 million (45 percent), hiding $9 million of underfunding. The plan’s liabilities are estimated at $193 million, but here the problem is much worse. This assumes the plan assets earn 7.75 percent every year, although over the past five years, the plan only earned 2.8 percent per year. If the town’s liabilities were valued using the same rate that the town uses for funding projects, the unfunded component of pension and OPEB (other non-pension benefits for retirees) liabilities would be more than $700 million — more than four times the annual town budget. Joshua Rauh from Northwestern University has been trying to blow the whistle on this for years, as it affects municipalities throughout the U.S.