When public finance officers met this summer in Anaheim, their association's outgoing president kicked off the convention with an all-out assault on an accounting board. Thomas J. Glaser spent the lion's share of his opening-day address ticking off the follies of the Government Accounting Standards Board's recent rules and what the Government Finance Officers Association intended to do about them. GASB's "time has come and gone," Glaser told the 3,000 or so members in attendance, some of whom interrupted the speech with their applause.

The attack on GASB was more than a little ironic, given that when the organization came into being in 1984, the finance officers' group played a major role in persuading the Financial Accounting Foundation, which oversees financial reporting standards for the private and nonprofit sectors, to set up a special branch for government accounting. In subsequent years - especially in the early years when it really mattered - GFOA worked to build its membership's respect for and acceptance of GASB and the standards it set.

Today, GASB is a powerful entity. Its financial-reporting rules have the potential to bring a government's budget to crisis. Refusal to follow its accounting precepts could lead to a downgrade in a credit rating or a shunning by the financial community.

But it is also an agency under pressure - and not just from GFOA. There is a threat to its financial-reporting hegemony: At least one state and several of its localities are set to defy a major GASB accounting rule. What's more, the chairman of the Securities and Exchange Commission has suggested that the SEC participate in the selection of some GASB board members. Such a move could impinge on the organization's independence and bring it, along with state and local accounting rules, closer to federal purview.

There is a lot at stake in this debate. If the effort to put GASB out to pasture were to be successful or if the other attempts to undermine its independence or hegemony were to prevail, it could have a profound effect on the way state and local governments do business.


The creation of GASB, which replaced the National Council of Governmental Accounting, was a sign of times: The mid-1980s was an era when the finance markets were taking an ever-increasing interest in governments and their bonds, and states and localities needed to modernize and harmonize the way they kept their books. "We knew we needed an independent standard-setter," says Relmond Van Daniker, who was executive director of the National Association of State Accountants, Comptrollers and Treasurers. At the same time, Van Daniker adds, "there was always a very large concern about federal involvement."

By having the FAF add GASB to its empire, state and local governments would have an independent standard-setter that understood, as GASB's current chairman, Bob Attmore, puts it, "government financial reporting is very different from the business environment. Governments don't exist to generate wealth or net income but to provide services to citizens."

Furthermore, an entity such as GASB also would understand the financial-reporting needs of Wall Street and the investors who put their money into municipal securities. "Financial reports are like a scorecard," says Parry Young, former director of the public finance department of Standard & Poor's Corp., the credit-rating agency. "You need a consistent methodology for keeping score so you can compare and look at an entity on an absolute basis and relative to others."

In the past 23 years, GASB has issued 50 "statements" - accounting rules - on how states and localities should report their revenue streams and account for various assets. Some statements clarified current practices. Most dealt with mundane issues, such as how to report food stamps as revenue. Then, in 1999, came Statement 34.

Unlike previous statements, 34 stirred up a great deal of angst. In effect, it turned the way governments kept their books upside down. Statement 34 called for accrual accounting, which measures not just current assets and liabilities but also long-term assets and liabilities - including infrastructure. In short, 34 was a demand for an inventory of fixed assets and the costs of taking care them.

At GFOA's annual meeting following the issuance of 34, a huge ballroom designated for a discussion of the latest GASB statement was packed - not only was every seat taken but every inch of floor space was filled with finance officers sitting on their haunches and taking notes. The concern among many of them - and certainly within the leadership of GFOA and other public-interest groups - was that the statement would be prohibitively expensive to implement and would deal with information nobody would want and that no one had ever asked for.

Glaser, who was the chief financial officer for Cook County, Illinois, before taking his current position as chief operating officer with its Bureau of Health Services, estimates that it cost Cook County $2 million to implement the infrastructure dictates of 34. Moreover, he claims that the information the $2 million produced has never been used by anyone making public policy decisions.

Statement 34 went into effect in 2001 for large governments; small governments had until 2003 to adjust. But just as finance officers and their governments were coming to terms with 34, along came 45. Statement 45, approved by the GASB board in 2004, says governments have to account for the liabilities of other post-employment benefits (OPEB) just as they do for pensions. The bulk of OPEB is retiree health benefits, and it turns out those liabilities are huge - billions of dollars for some states and cities.

At this point, most governments are still trying to figure out the extent of those liabilities and how they will deal with such complex details as "implicit rate subsidy." Only a handful of agencies have decided how they're going to pay for an expense they always had but never booked. CalPERS, the huge California pension plan, is setting up a trust fund. Others may issue bonds or notes or use a pay-as-you-go approach.

But one state - Texas - is refusing to comply. This past summer, its legislature decreed that the state does not have to report OPEB liabilities nor do its localities - a change that was, in fact, more moderate than the original draft of the bill, which would have prohibited localities from reporting OPEB liabilities.

Nevertheless, it represented an in-your-face defiance of a major GASB statement. Some Texas legislators questioned the legitimacy of GASB, and Texas Comptroller Susan Coombs and other Texas officials tried to persuade other states to follow their lead.

What the non-reporting of its OPEB obligations will mean to Texas and its standing in the financial community remains to be seen. "To the extent that that information is not provided or is ignored," Parry Young says, "that would leave a hole in the information process from that government. It is not a very good thing."

For Bob Attmore, who has headed up GASB for the past three years, the Texas defiance came down to whether the fire would spread. "If others had followed, I'd be concerned," he says. "But most folks recognize that when they incur obligations and make promises, they should be accountable."

For now, the Lone Star State stands alone.


No one has fully adjusted to 45 - and yet, this past April, GASB announced another major initiative: reporting on Service Efforts and Accomplishments, which is voluntary but still represents another burden.

The SEA project is developing protocols to help state and local governments set up performance measures and report on them. It does not say what services should be measured or how. That would be left up to each individual government. "What we're talking about is a sliver of what's referred to as performance management," Attmore says. "We're focusing on reporting the actual accomplishments back to citizenry. We're interested only in public reporting."

Nevertheless, the SEA initiative set off a firestorm. Along with GFOA, several of the major public-interest groups feel GASB is trying to take control of the performance management process, and that what's voluntary today will be mandatory tomorrow. "Even though they would argue they are not trying to require it," says Don Borut, executive director of the National League of Cities, "the moment a body known to be a standard-setter talks about recommendations, people will say, 'these are standards, and we have to follow them.'"

Van Daniker takes a more sanguine view. From his current perch as executive director of the Association of Government Accountants, which represents federal, state and local financial officers - he is willing to give GASB the benefit of the doubt. "We agree with GFOA that there should not be standards," he says, "but we are willing to accept GASB's word that they will not develop standards in this area. I don't think GFOA is. That's what it comes down to."

It also comes down to a belief that, by entering the SEA field, GASB is impinging on political and budgetary decisions. "Focusing attention on SEAs is not an appropriate role for GASB," argues Borut. "GASB plays a positive, fundamental role in terms of financial standards, and that's where its expertise, talent and skill sets ought to be directed."

Esser is less tactful. He considers the board's move into SEAs nothing short of mission creep. "To a man with a hammer," he likes to say of GASB, "everything looks like a nail."

Despite all the tension last summer, GASB is moving forward with its project and has gathered allies from the public sector, such as the Association of Government Accountants and the National Association of State Accountants, Comptrollers and Treasurers. Meanwhile, GFOA and the International City/County Management Association are working with several other public-interest associations to set up an advisory commission that, according to Michael Lawson, director of ICMA's Center for Performance Measurement, "would look at performance management and the role it plays in larger organization leadership." The new association, however, is not necessarily in competition with the GASB effort. In fact, Lawson was among those attending a GASB presentation on its SEA effort this fall.


Much of the overt tension between GASB and GFOA seems to stem from the SEA project, which surfaced in an environment of frustration with previous dictates. For localities, however, the issue may be further compounded by growing pressures that have nothing to do with GASB - namely, unfunded mandates and state and federal preemptions that have given cities and counties the feeling of not being in control of their purse strings or their destiny.

There are other theories for the ill-will toward GASB. Van Daniker, who has no problem with the board being the national standard-setter, thinks the problem may lie in the early history of the organization. When GASB was being developed, many finance officers thought they were going to have an accounting board that would write so many standards and be finished. "Well, they've written 50 now, and they have a big work list," he says. "What some people may be thinking is, 'Jiminy Christmas, we never thought GASB would be around this long, and all these standards cost money - maybe we should just get rid of GASB.'"

However frustrated the public-interest associations and their members - mayors, county executives, legislators and finance officers - may be, the tone of the argument has been more muted this fall. Jeff Esser is careful to say that his first choice is not the demise of GASB. "GFOA supports having an independent standard-setter," he says. "We prefer to have GASB continue with its original mission."

The softer tone may also reflect a coming together against a common "enemy." With the SEC making noises about trying to participate in the naming of some GASB board members, representatives of the big seven public-interest groups and GFOA went to see SEC Chairman Christopher Cox. "We indicated to him - and he acknowledged - that states have sovereign rights," Esser says. "He acknowledged that, specifically, setting financial and reporting standards is one of those." Esser feels reassured by a Cox speech in July that acknowledged the sovereign rights of states.

Nonetheless, the threat is there. And the SEC's vetting of GASB board members could lead to federal oversight of state and local financial reports. That's something GASB was formed to avoid and GFOA clearly opposes.