Governmental sustainability: can GASB help?

AuthorCheney, Glenn A.
PositionFINANCIAL REPORTING - Report

In state and local governments across the nation, pension plans, pork-barrel projects and desperate bond issuances are finally adding up to questions about sustainability. It's serious. There is talk of the impossible: state governments going broke. Citizens are asking how governments could get into such terrible economic condition. How could so few see it coming?

One common answer: lack of information in government financial reports. With that concern in mind, the Governmental Accounting Standards Board has moved into the third phase of a project to provide guidelines for economic condition reporting--a bold new area for a board that has generally focused on reporting on past events, not future possibilities.

GASB chairman Robert H. Attmore is quick to point out that the board is not going to ask governments to predict the future. "I certainly don't advocate reporting predictions of future events, but that does not preclude considering forward-looking information," Attmore wrote, expressing his personal opinion in the Journal of Government Financial Management.

He added: "The inclusion of this information could represent an important advance in providing users of governmental financial reports access to the information they may need to make informed decisions not just about how a government has performed recently, or historically, but about how--based on projections--they might expect it to perform going forward."

GASB began working on this project long before headlines started reporting government fiscal crises. Early research showed that the users of governmental financial information wanted to understand a government's past condition so they could understand how it got to its present condition so that they could understand what its future condition might be--in other words, its fiscal sustainability.

Though astute users said they were able to use existing financial reports to assess sustainability, many others wanted to see the future laid out in clearer terms.

GASB has yet to define "fiscal sustainability," but it is likely to pull guidance from federal and foreign standard setters that have already been dealing with the issue. Common themes include a government's ability to continue to provide public services, to meet financial commitments and to maintain a stable tax burden and reasonable levels of debt.

GASB will need to walk a fine line between projections and predictions to write guidelines that result in meaningful financial...

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