A scheduled accounting change in the way governmental entities must treat pension debt has local city and school financial officers sweating potential higher borrowing costs.
Beginning in Fiscal Year 2015, the Governmental Accounting Standards Board is set to require many Oklahoma schools and cities to list millions of dollars of pension debt on their financial statements even though they “don't owe it” and “can't legally pay it,” said state Auditor Gary Jones.
“It could be devastating for the schools. It could be devastating for the cities,” Jones said.
That should concern taxpayers, since the change could potentially prompt credit rating agencies to downgrade the credit ratings of Oklahoma cities and schools. That, in turn, could lead to higher interest rates on bond issues that taxpayers would have to finance, he said.
State Treasurer Ken Miller said he and other Oklahoma State Pension Commission officials were concerned enough about the situation that in September 2011 they sent a letter to Governmental Accounting Standards Board officials asking for changes in the proposal.
State treasurers, as a group, also have voiced unified opposition to the accounting change, he said.
Jones said the only way he knows to possibly stop it now is through special legislation.
“We need for the Legislature to look at creating what's called a special funding situation that basically says this pension obligation rests with the state and we're not going to push it down to somebody that doesn't owe it,” he said.
At issue is who is truly financially responsible for about $11.4 billion in pension debt accumulated by the state's seven retirement systems.
Jones said state statutes and a state Supreme Court ruling say the State of Oklahoma is responsible for all the pension fund debt, not individual cities and school districts.