Here in New York, the implementation of GASB Statement No. 84 has created some confusion! We thought it might be helpful to unpack the relationship between LOSAP and the GASB over a series of articles. We've consolidated this information into a newsletter - if you would like a copy, please contact our office.
Since the General Municipal Law (GML) was amended to authorize local governments to spend tax dollars on a Length of Service Award Program (LOSAP), the reporting of the assets and liabilities on financial statements has been evolving. At Firefly, one of our core principles is collaboration. We actively seek to build relationships and support all parties with responsibility for our clients’ LOSAP – board members, clerks, treasurers, and other hired professionals like attorneys, investment managers, and auditors. Through these collaborations, we learn how to improve our services to meet the needs of each party.
The purpose of these blog posts is to provide an overview and context on this subject, with the goal of pointing the reader to the experts who can guide you further.
The Government Accounting Standards Board (GASB)
The GASB is an organization that establishes accounting and financial reporting standards for state and local governments that follow Generally Accepted Accounting Principles (GAAP). In New York, a particular city, village, town, or fire district (the four possible local government sponsors of a LOSAP) are not statutorily required to follow GAAP. The adoption of GAAP for financial reporting depends on the facts and circumstances of that particular municipality.
The Office of the State Comptroller (OSC)
Cities, villages, towns, and fire districts are required to file an Annual Update Document (AUD) prescribed by the (OSC). The OSC reviews GASB pronouncements and decides which ones to incorporate into the AUD. The timing of when those changes are incorporated may be later than when the actual pronouncement is effective for GAAP-based financial statements. Therefore, these governments have two potential sources of guidance when implementing changes in financial reporting – the GASB and the OSC.
The Finances of LOSAP in New York State
We like to describe LOSAP as a sophisticated IOU – it is an unsecured promise by the sponsoring local government to pay a benefit at the entitlement age. The GML requires sponsors to reserve assets for the payment of the accrued benefits as they come due, and these assets are held in accounts owned by the local government. These assets are held in trust for the exclusive purpose of LOSAP; however, they are not secured against the creditors of the government sponsor in the case of insolvency. In other words, the LOSAP benefits are not guaranteed by the State Constitution like the Retirement System, and the LOSAP assets are not legally protected from creditors of the sponsoring municipality. That should not raise significant concern for local governments in New York, as the OSC Fiscal Stress Monitoring System and other safeguards make it very difficult for a municipality to go bankrupt. Nonetheless, it is an important distinction for the purposes of financial reporting.