Muni Bonds: Texas Says No To OPEB Rules

"Whoa!" says Texas to the new reporting guidelines for disclosing OPEB liabilities. The state treasurer, Susan Combs, recently stated that Texas was not planning to comply with the GASB 45 guidelines in disclosing unfunded Health Care liabilities for public workers. These guidelines, which are being phased in over the next 3 years, are designed to increase disclosure of unfunded liabilities so investors have a better understanding of the financial position of a municipality before investing in it's debt obligations.

The State of Texas is taking the following position relative to these disclosure requirements:

1. These are not "hard liabilities" of the State, because the legislature can change the amount it appropriates for the payment of these benefits.
2. It is impossible to know what this stream of benefits may be for the next 30 years.
3. Workers will suffer because municipalities will discontinue offering these benefits to their workers.

This is a very interesting approach to the OPEB disclosure requirements, because what the State is saying in plain English is this: "You can't make us do this because we don't really owe these workers these benefits, it's too much trouble to figure them out even if we did owe it to them, and how dare you jeopardize their future benefits (that we feel we don't owe them anyway)."

This is a unique response and has some serious consequences. First, it is a politically untenable position to take in regard to the employees of the State. After all, if you were an employee of the State of Texas, how secure would you feel your Health Care benefits were after you retired? Second, it is an attempt by the State to thumb it's nose at the GASB and investors. When Texas attempts to fund projects in the municipal bond market, it will receive an adverse determination letter for lack of proper disclosure. What investor will buy Texas' securities under those circumstances?

This position is indefensible and not reasoned properly. Estimates of the State's unfunded OPEB liability are around $50 billion. Can this be what is driving this decision by Susan Combs?