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Page 1 ot 1 Joerns, John From: Clark T. Askins [ctaskins@swbell.net] Sent: Friday, June 08,20079:48 AM To: Joerns, John; Welch, Neal; Swanagan, Robert Subject: GASB 45 Folks: In light ofthe question raised at last night's Chapter 172 meeting regarding GASB 45, I reviewed HB 2365, which at this point is on the governor's desk for signature. Under this bill, both the State and political subdivisions of the state may, if they choose, opt out of GASB 45 accounting requirements. In the words of an article I found, "The bill establishes a 'statutory modified accrual basis' of accounting that 'recognizes revenue when it is measurable and available to finance current expenditures and recognizes expenditures when they are normally expected to be liquidated...' The bill specifically addresses accounting for other postemployment benefits by providing 'To the extent that generally accepted accounting principles require accounting or reporting of other postemployment benefits at the government-wide or fund level on any basis other than pay-as-you-go, this state and its political subdivisions may account for or report those other postemployment benefits in accordance with the statutory accounting principles in this chapter.' In other words, this bill would allow the City to follow pay-as-you-go accounting principles laid out in the new law, in lieu of following the GASB 45 regulations. Therefore, assuming this bill becomes law, it is my opinion that the City of La Porte could choose to bypass GASB 45 and stick with pay-as-you-go. However, as has been pointed out, this would come at the possible expense of our bond rating, depending on the approach outside auditors, accountants, etc. take the absence of GASB 45 information. (On this note, I would mention that the bill allows an entity that opts out of GASB 45 to nonetheless indicate the value of its non-pension retiree obligations (health, life, dental) as a footnote, on its financial statements. The Texas Attorney General had previously opined that the State is not legally compelled to follow GASB 45. It is not mandated by Congress on the states, nor does GASB have independent powers of enforcement. This being the case it looks like the Legislature took a rather bold move, and one that may be followed by other states. Clark 6/19/2007