Net Pension Liability Impact on School Districts after Incorporation of Governmental Accounting Standards Boards (GASB) Statement Number 68

Authors

  • Michael J. Gallagher DeSales University
  • Emily F. Gallagher Axalta, Inc

DOI:

https://doi.org/10.30564/jbar.v2i1.407

Abstract

This paper analyzes twenty school districts in the state of Pennsylvania and applies ratio analysis to understand the potential effect of GASB number 68 on the financial statements of these entities.  The financial statements were picked on a random basis from the Electronic Municipal Market Access [1] database. EMMA is a research and data retrieval system of the Municipal Securities Rulemaking Board (MSRB). The MSRB provides resources to trade municipal bonds and access to the financial statements of entities selling these securities.

 

The paper was developed as a result of the requirement by GASB to “recognize their long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits” [2].

 

The public schools in Pennsylvania incorporated GASB number 68 for the fiscal year ended June 30, 2015 and restated the financial statements for the fiscal year ended June 30, 2014. The effects of these restatements created a situation where most of these districts now show a negative fund balance caused by an increase of liabilities of over one hundred percent. Many of the decision makers are uncertain of the long-term changes that this recognition will have on the operations of the school district. Bond ratings have suffered because of the volatility and uncertainty causing negative effects on the balance sheet, increased current recognition of pension expenses, and a possible interest rate increase. All of these effects are illustrated in this paper. This is at a time where many people are questioning the performance of many of the school districts.

Keywords:

Pensions; Governmental accounting; Government Accounting Standards; Board Concept Statement #68

References

[1] Electronic Municipal Market Access (EMMA) (2016). A database sponsored by the Municipal Securities Rulemaking Board (MSRB).

[2] Governmental Accounting Standards Board (GASB) (2012). GASB Improves Pension Accounting and Financial Reporting Standards, Retrieved from: http://www.gasb.org/cs/ContentServer?pagename=GASB/GASBContent_C/GASBNewsPage&cid=1176160126951 (7/2016).

[3] Financial Accounting Standards Board (FASB) (2006). Employers’ Accounting for Defined Benefits and other Postretirement Benefits. Retrieved from: http://www.fasb.org/summary/stsum158.shtml (9/2016).

[4] Morningstar (2012). Pension Data 2013 Report. Retrieved 7/12/2016 from: https://ballotpedia.org/Pension_data,_2013_Morningstar_report

[5] Barkley, R., (2013). The State of State Pensions Plans 2013: A Deep Dive Into Shortfalls and Surpluses. Published by: Morningstar, Inc.

[6] Taft, J. (2015). A Force for Good How Enlightened Finance Can Restore Faith in Capitalism. Palgrave MacMillan publishers.

[7] Public School Employees’ Retirement System (2016). Retrieved 9/5/2016 from: http://www.psers.state.pa.us/

[8] Pennsylvania School Funding Project (8/2017). Pennsylvania’s Historic School Funding Problem Retrieved from: http://www.paschoolfunding.org/the-problem/pennsylvania%E2%80%99s-historic-school-funding-problem/

[9] Pennsylvania Department of Education (9/2012). School District Financial Recovery Early Warning System. Retrieved from: http://www.education.pa.gov/Documents/Teachers-Administrators/School%20Finances/Financial%20Recovery%20for%20School%20Districts/Early%20Warning%20System.pdf (8/2017).

[10] Hall, S. (2014). School Districts Using Emergency Funds to Balance Budgets, Retrieved from: http://thetimes-tribune.com/news/school-districts-using-emergency-funds-to-balance-budgets-1.1737215 (9/2016).

[11] Esworthy, S. (2014). School Districts Required to Report their Share of the School Pension Deficit. Retrieved from: https://www.bssf.com/pdf/GASB%2068%20Article%20ScottEsworthy.pdf (9/2016).

[12] Matera, J. (6/23/2106). A Perfect Storm: Most Central Pa. School Districts Approving Tax Hikes to Weather Rising Costs. Retrieved from: http://www.pennlive.com/news/2016/06/school_districts_tax_increases.html (9/2016).

[13] Schoen, J. (6/25/2015). State Budget Balancing is Putting Pensions at Risk. Retrieved from: https://www.cnbc.com/2015/06/25/t-balancing-inflicts-pension-pain.html (8/2017).

[14] State Universities Retirement Systems (SURS) (7/7/2017). Legislature Passess FY 18 Budget Including Optional Hybrid Plan. Retrieved from: http://www.surs.com/news-article/073117/legislature-passes-fy-18-budget-including-optional-hybrid-plan (8/2017).

[15] Pennsylvania School Board Association (9/2016). PA Budget. Retrieved from: https://www.psba.org/issue/budget-2015/

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Vol. 2 , Iss. 1 (January 2019)

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