Yesterday the Government Accounting Standards Board, passed a new standard that will require governments to disclose their unfunded pension liabilities on their statements. More details here. So what does this standard have to do with nonprofits?
We are watching a state pension crisis unfold across the country. In our state of PA, the pension plan annual contributions are expected to increase from $1 billion to $4 billion in just 3 years. There is only so much money in the state budgets. And taxes can only be raised to a certain extent before hurting the economy and threatening business growth. So the nonprofits are likely to see state funding reductions.
We are already seeing this in our state. Initially a 20% reduction was proposed for a segment of state funding that is passed through the local Counties. While we recognize that the state will need to cut expenses,
20% in one year is too large. Some
nonprofits can cover the reduction with other revenue sources but most
nonprofits that receive this funding will have to cut services and lay off
About a month ago we had the privilege of standing
alongside our area nonprofits for a press conference speaking out against the
proposed funding cuts. The effect on the local economy
is eloquently expressed by my colleague, Liz Vibber in this video clip of her
part of the press conference. The good news is that the state is revisiting these initial redcutions. While it is likely that the full County funding will not be restored, the reductions will not be as significant as originally feared.
So back to our pension issue, pension reform is critical. The ripple effects of the pension crisis will not only affect businesses and individuals but nonprofits. In January 2011, the PICPA Fiscal Responsibility Task Force published a report recommending policy options on a number of different issues including pension. The pension policy options address some very hard choices that state legislators would need to consider including freezing the current system and even challenging the concept and judiciary decision that prospective benefits for current employees cannot be changed. The full report can be viewed here.