Governments will need to account for future costs of today’s decisions

There’s no such thing as a free lunch, but that doesn’t stop politicians from putting them on the menu.

Accounting gimmicks and one-time revenue tricks like sale-leaseback arrangements and concession agreements make today’s budget look balanced while making future budgets even more out of whack.

Under new accounting rules released this month, the Governmental Accounting Standards Board will require states, counties, cities and towns to report these future costs or, in some cases, benefits.

The new rules will require states to report their deferred inflows and deferred outflows, in addition to their assets and liabilities on a statement of net position.

GASB uses the example of a private company paying a state $1 billion up front to operate a toll road for 50 years to illustrate a deferred inflow:

“Rather than recognizing the $1 billion payment as revenue immediately, the state would record a deferred inflow of resources to the extent that it did not incur any liabilities as a result of the arrangement and recognize a portion the upfront payment as revenue in each year of the agreement.”

The board deliberated Tuesday on related rules that specify what qualifies as deferred inflows and outflows. It also began discussing a future project that will more closely regulate how governments account for the financial guarantees they make.

Next month, GASB will begin a conversation on other post-employment benefits, or OPEB.