CPC Study Finds Orange County Again Confronting Bankruptcy Under New Accounting Rules
FOR IMMEDIATE RELEASE
Sacramento, California, June 4, 2013
A new study published by the California Policy Center analyzes the impact of GASB and Moody’s new – and final – rules governing financial reporting for pensions. These rules take effect next year.
If Orange County had been using the just adopted GASB rulings governing pension accounting back in 2011, instead of the County having a net worth of nearly $4.0 billion, the county would have had a negative net worth of $140 million. Even worse, if Orange County’s credit had been analyzed back in 2011 (a critical step necessary before a public entity can issue bonds) using Moody’s recently finalized new criteria for evaluating pension liabilities, the County would have had a net worth of negative $3.1 billion, instead of the positive $4.0 billion they reported to taxpayers. According to these new financial guidelines which take effect next year, Orange County has been overstating its financial net worth by somewhere between $4.0 and $7.0 billion. This example is typical.
“The abyss of pension debt that state and local governments have imposed on the people is about to be exposed,” said John Dickerson, author of the study, “the degree to which this debt is destroying vital public services will be much clearer than ever before.”
“Our politicians have been hiding behind phony financial statements. We have been making promises to our public employees that we cannot afford. These new financial standards will allow everyone to see the true costs of the promises politicians have made to public employees,” said Mark Bucher, president of the California Policy Center. “Orange County is once again confronting bankruptcy. It is immoral and irresponsible to be making promises to future retirees without setting aside the money to pay for them. We are saddling our children and our grandchildren with debt that they will never be able to repay.”
This new report by John Dickerson, a financial analyst based in Mendocino County, demonstrates what’s about to happen by applying GASB’s new pension reporting rules and Moody’s adopted adjustments to seven counties in California. He previously provided analysis of Moody’s proposed adjustments. This new report analyzes Moody’s final adopted adjustments and compares them with what Moody’s proposed last summer.
The seven counties analyzed in the study have independent County Pension Funds instead of participating in CalPERS. They are Alameda, Contra Costa, Marin, Mendocino, San Mateo and Sonoma Counties in the San Francisco Bay Area and Orange County in Southern California. Their June 2011 financial statements are adjusted to show what they would have been had GASB 68 been in effect – and had Moody’s applied their adopted adjustments.
These counties together reported their Assets were worth $10 Billion more than their debts. GASB 68 would have cut that margin by 90% – down to $1 Billion. Over $8 Billion of Net Pension Liabilities (unfunded pension debt) would have been forced onto their statements and $1 Billion of “fake” Net Pension Assets would have been written off. Three counties would have reported more debt than assets.
Moody’s adjustments are even more stunning. They would have recalculated these counties’ unfunded pension debt to be nearly $18 billion – $10 Billion more than GASB’s rules would have shown. Collectively Moody’s would have assumed these counties had nearly $7.5 Billion more debt than assets. Only Marin would be left “above water” with more assets than debt. Marin has the highest per capita income of all counties in the United States. Two counties – Contra Costa and Mendocino – would be deemed by Moody’s as having 2½ times more debt than assets.
“Very few governments have focused on the new pension reporting rules. They’re going to hit thousands of local and many state governments like a ton of bricks. A revolution in how state and local governments report their pension finances is coming,” said Dickerson.
To read the entire study, click on “Moody’s Final Adopted Adjustments of Government Pension Data.”
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The California Policy Center is a non-partisan public policy think tank that aspires to provide information that will elevate and enlighten the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at www.CaliforniaPolicyCenter.org.