The Ledger October 2015 www.gfoaPA.org

Quarterly News From the Government Finance Officers Association of Pennsylvania

From the President of GFOA-PA

The Governmental Accounting Standards Board (GASB) has in-vited members of GFOA-PA to participate in an important survey regarding the activities that you engage in when preparing and publishing your audited annual fi-nancial reports in conformity with generally accepted accounting principles (GAAP). The informa-tion collected will be highly valu-able to the GASB in evaluating the costs and benefits associated with conforming to GAAP and the effect on the timeliness of issu-ing GAAP financial reports. This will be particularly important as the GASB reviews the standards related to the financial reporting model, including Statement 34. The GASB understands that this is a very significant request in light of the demands of your posi-tion and your available resources, particularly if this is the period dur-ing which you are preparing your

GASB survey of financial statement preparers

financial statements. For this rea-son, the GASB has provided a longer-than-normal response peri-od. Also, to assist you in complet-ing the survey, the GASB staff will be available to answer questions throughout the survey period. The staff will be conducting two tele-phone conferences to provide an overview of the survey and answer your questions—on Wednesday, September 30, at 10:00 am EDT and Thursday, October 8, at 4:00 pm EDT. Recordings of the tele-conferences will subsequently be available on the GASB website. GFOA-PA members are encour-aged to complete the survey. You can download the survey and sign up for one of the teleconferences here. The deadline for complet-ing the survey is December 15, 2015.

Dear GFOA-PA members,

It is now fall with the beautiful changing of leaves and temperatures. Here are a list of other changes coming:• Fall also rings in the election season, which in-cludes the upcoming elections for two of our at-large positions on the state board. Please partici-

pate in the voting when you receive your ballot. • The GFOA -PA Listserv is also changing. You will be receiving infor-

mation from our business office explaining these changes. • One important change to note is that our members with 150 full time

equivalents must complete the Affordable Care Act fillings required by the IRS for 2015 year-end.

The 2016 state conference planning committee, chaired by Judy Kord-ing, has finalized the program. You will be receiving emails on the pro-gram schedule very soon. The dates for this conference are Sunday, April 24 through Wednesday, April 27, 2016. Please place this on your calendar.

As budget time is upon us, may we all have a smoother process with our budgets than the state is having with theirs! Teresa L. WindsteinGFOA-PA President

GFOA-PA’s MissionThe purpose of the Association shall be

to enhance the education and development of finance professionals in Pennsylvania’s governmental entities.

The LedgerThe Ledger is published by GFOA-PA

to communicate with and inform its membership about news and events

affecting government finance.

GFOA-PA OfficersTerri Windstein, PresidentAssistant Finance Director Municipality of Mt. Lebanon

Nicholas Hiriak, President-ElectFinance Director

Upper Merion Township

Judith Kording, Vice PresidentDirector of Finance & Administration

Shaler Township

Richard Grove, SecretaryFinance Director

Lower Allen Township

Bruce T. Koller, TreasurerFinance Director

Upper Macungie Township

The Ledger is a publication of the Government Finance Officers Association of Pennsylvania (GFOA-PA). Original articles on subjects of inter-est to the membership are welcome and should be directed to The Ledger contact. Articles sub-mitted for publication are subjected to review by the editorial board. The reviews and opinions ex-pressed in the articles published in The Ledger are solely those of the author and do not necessarily reflect the opinion of the Board or membership of the GFOA-PA. The publication of articles or ads in The Ledger does not reflect direct or implied endorsement by GFOA-PA of the author’s view or opinions or any product or service represented.

October 2015 The Ledger Page 2

Welcome New Members(July 1, 2015 – September 29, 2015)

James B. AllenPA Association of Public

Employee Retirement SystemsHarrisburg, PA

Sam AshbaughCity of Pittsburgh

Angela BrownawellPSDLAF

Lancaster, PA

Chase BylerPSDLAF

Lancaster, PA

Rajesh ChainaniPSDLAF

Lancaster, PA

Brian J. ConnollyCrawford County Commissioners

Meadville, PA

John LaGrecaWest Pikeland Township

Chester Springs, PA

Denise MasonCrawford County Commissioners

Meadville, PA

Ryan McGowanM & T Bank

Wilkes-Barre, PA

Adam MoldavanPSDLAF

Lancaster, PA

Tracy NonamakerAmity Township

Douglassville, PA

Donna PiperHarmar Township

Cheswick, PA

Charity RosenberryPennsylvania Municipal

Retirement SystemHarrisburg, PA

Ken ShulerPSDLAF

Lancaster, PA

Michael StramaraPSDLAF

Lancaster, PA

Cherie WeberMuncipality of Murrysville

Murrysville, PA

Mark YasenchakPFM Asset Management LLC

Harrisburg, PA

Save the Date

GFOA-PA’s 30th Annual Statewide

ConferenceApril 24 - 27, 2016

The Penn Stater Conference Center Hotel

It’s Our Pearl Anniversary!The conference planning

committee has been hard at work making sure the 2016

conference offers theeducation, networking and fun

you’ve come to expect from a GFOA-PA conference.

Look for details soon, but mark your calendar now to

make sure you can attend this 30th anniversary event!

30th Anniversary

News From the RegionsWest Region

Judy Kording, Regional Chair

The West Region held a seminar, Affordable Health Care, in Greentree Borough on September 21. More than 45 members and non-members attend-ed. The speakers were Anne Lavelle from Cohen & Grigsby and representatives from ADP. The ses-sion was a huge success and we believe that some non-members will be joining GFOA-PA next year as a result of the session. Anne Lavalle was very well informed and will be considered as a speaker for a future state conference.

On January 13, GFOA-PA’s west region will hold a session on Insurance Bonding and Crime Cover-age. The speakers will be underwriters from the in-surance carriers that write this coverage. The HDH Group has graciously agreed to sponsor lunch at this event. The session will begin at 10:00 a.m. at the Pine Township Community Center, Pine Park Drive, Wexford, PA 15090. Additional information will be coming in the next few weeks.

Board member Dawn Lane has resigned from GFOA-PA as she has accepted the manager’s po-sition at the Township of Moon. The west region’s board appointed Molly Brennan as the new west region board member. Molly is the finance adminis-trator at Baldwin Borough. She interned through the Local Government Academy at Baldwin Borough and was hired full time after her internship. We wish Dawn well in her new appointment.

Dan Berty, accounting supervisor of the Township of Upper St. Clair, has accepted the position of fi-nance director for Ross Township, replacing Dawn Lane. Dan is a member of the GFOA-PA west re-gion board. We wish him well in his new appoint-ment.

Central RegionMike Lehman, Regional Chair

The Central Region held its spring board meeting during the state conference in April. There were a number of positive comments about the quality of the topics and speakers at the state conference this year. Additionally, a number of board members also attended the national conference in Philadelphia.

Our summer training session was on August 21 at the Harrisburg office of MaherDuessel. The session focused on identifying the true cost of the munici-pality pension plan and understanding the various payout options available to employees through So-cial Security.

On September 23, the board met for its annual planning session to begin working on developing training sessions for 2016.

We are planning one final training event for 2015 on November 19 at Upper Allen Township. The topic will be Understanding Risk Management Issues in a Local Government Setting.

October 2015 The Ledger Page 3

Business Office174 Crestview Drive

Bellefonte, PA 16823-8516Phone: 877-700-GFOA

Email: info@gfoaPA.orgwww.gfoapa.org

Contact GFOA-PA

The LedgerRichard Grove

Finance DirectorLower Allen TownshipPhone: 717-975-7575

What’s New in the Knowledge Center?What can you find in GFOA-PA’s

members-only Knowledge Center?• 18 RFPs• 31 personnel resources• 12 time off resources• 2 personnel forms• 15 other resources• 5 other resources

Visit the Knowledge Center

West region members and non-members participatein a recent educational session

October 2015 The Ledger Page 4

Many state and local government pension plans throughout the nation are significantly underfunded. State and local governments have taken a number of actions to try to ad-dress these problems. Often these actions are an attempt to reduce pension benefits. These attempts have involved everything from new legislation to declarations of bankruptcy. Many states’ laws, including Pennsylvania’s, have constitutional prohibitions against reducing the pension benefits of existing employees. For the most part, attempts to reduce pension ben-efits of the active employees through legisla-tion have generally proved to be unsuccessful. The use of bankruptcy proceedings to reduce pensions has had more of mixed result with bankruptcy courts generally expressing a more liberal approach to reducing active employees’ pensions. Nonetheless, we are not aware of any instances where a bankruptcy court has ordered reduction of a pension without the con-currence of the municipality. Despite the lack of success at reducing pensions, state and lo-cal government officials continue to advance proposals to reduce the pensions of active em-ployees and thus we can assume cases will continue to test the protection of pensions in Pennsylvania.

Governor Tom Wolf’s Task Force on Municipal Pensions recently released its report on re-forming municipal pensions. The report notes

that approximately one-third of Pennsylvania’s municipal pension plans are less than 80% funded. The report attributes the underfund-ing to a combination of factors including a lack of sound investment assumptions, a failure to fully fund obligations, increased life expectancy of participants and stock market declines. The report recognizes that the State courts gener-ally hold that pension obligations cannot be re-duced or eliminated, which makes closing the funding gap critical.

The report makes a number of recommenda-tions to address the issues, including the fol-lowing:• Increasing penalties for municipalities that

do not pay their full minimum municipal ob-ligation;

• Prohibit the use of state aid for administra-tive expenses;

• Adopt GAAP and GASB standards for re-porting pension liabilities;

• Exclude municipal pensions from the bar-gaining process;

• Post pension plan investment performance data and investment fees;

• Shift management responsibility for under-funded plans to a shared investment man-ager;

• Consider the possibility for a statewide de-fined benefit structure for new hires in un-derfunded plans;

• Require underfunded pension plans to adopt new investment and benefit stan-dards (including eliminating lump-sum DROP payments); and

• It appears Philadelphia and Pittsburgh could opt out of the underfunded plan provi-sions and adopt a five-year plan to meet the report standards and develop a new hires plan.

In our view, municipal officials and those ad-vising municipal entities should be concerned about some of these recommendations.

Currently, the penalty for not making the mini-mum municipal contribution is that interest ac-crues on the delinquent contribution. Thus, the municipality is required to make the plan whole, including the interest that the plan would have earned on the delinquent contributions. We fail to see how imposing the burden of paying an additional penalty is justified. If anything, it will result in an additional unnecessary burden on the municipality’s finances at a time when mon-ey is tight for most municipalities.

The proposal to prohibit a municipality from using state aid for administrative expenses ac-tually does little to enhance funding of under-funded plans. Most municipal plans less than

LOCAL GOVERNMENT PENSION REFORM IN PENNSYLVANIA

Continued on the next page

By Rhoades & Owen, LLC

October 2015 The Ledger Page 5

80% funded will draw down maximum state aid and still have to con-tribute significant municipal funds to pay the minimum municipal obliga-tion. Considering that money is fungible, this proposal would have little effect on such plans. It would, however, have a detrimental effect on the finances of municipalities with better funded plans.

The proposals to shift investment responsibility to a shared investment manager and to put new hires in a statewide plan sound reasonable in theory, but considering the experience of SERS and PSERS, it may not be advisable. Many municipal pension plans are better funded than SERS and PSERS, which demonstrates that bigger is not always better.

Excluding municipal pensions from the bargaining process is an inter-esting proposal but one that would seem to be politically difficult to im-plement. Local government employees are highly unionized and retire-ment benefits are a very significant part of most government employees’ compensation packages. Consequently, government employee unions are likely to engage in an intense lobbying effort against this proposal.

The reality is that there is no magical solution that will quickly solve the funding issue for unfunded plans. Funding problems do not happen overnight and the problems will not be solved overnight. Prudent man-agement, including a hands-on approach to controlling benefits, closely monitoring investment performance and controlling administrative costs are the essence of good pension plan management. Because every situation is different, we believe that local officials are in a better position than state officials to manage their retirement plans.

The above summary was prepared by Rhoades & Owen, LLC, a law firm providing advice with respect to governmental benefit matters. For more information, feel free to contact Randall R. Rhoades at 412-765-2228 or rrhoades@rhoadesowenlaw.com

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The U.S. Economy: American Consumers Upbeat Despite Global Market Panic

Second quarter Gross Domestic Product (GDP) growth improved sharply to 3.7% on an annual basis representing improvement in con-sumer spending, business investment, trade and government outlays. Even as global stock markets whipsawed in late August and early Sep-tember, erasing at one point over $8 trillion in market values, American consumers bought new autos, houses, electronics and clothing. Auto-mobile and home sales are at 10 year highs as consumer confidence remains buoyed by improved job prospects and lower energy costs. The unemployment rate fell to 5.1% in August, lowest since 2008 as employers are confident about the economy’s prospects. The low un-employment level and the restoration of jobs lost since the recession began is one of the primary Federal Reserve indicators. Inflation re-mains below Federal Reserve targets as energy and other commodity prices held at near term low levels due to the slowdown in Chinese manufacturing activing.

FOMC and Interest RatesFOMC Leaves Short-term Rates Unchanged

As expected in a 9-1 vote, the FOMC left short-term rates unchanged at their September 17 meeting keeping in place the record-low bor-rowing costs. In the Federal Reserve’s official statement they cited global stock market and currency concerns and the effect on infla-tion for their restraint: “Recent global economic and financial devel-opments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” and the notion that the Fed is “monitoring developments abroad.” The com-mittee repeated that it will raise rates when it has seen “some further

By Michael R. VaranoMarket Update

Continued on the next page

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October 2015 The Ledger Page 7

improvement in the labor market and is reasonably confident that in-flation will move back to its 2 percent objective over the medium term.” Fed officials continue to anticipate higher rates but lowered their me-dian estimate for the Federal Funds rate at the end of 2016 to 1.375% from their June forecast of 1.615%. Fed officials forecast a rate rise to 2.625% in 2017.

How Higher Interest Rates Can Affect YouLow short-term rates limit public fund investors’ investment income, while higher longer-term rates hinder bond refinancing and add inter-est costs to new issuances. Intermediate- and longer-term U.S. inter-est rates have risen over the last few months as the market has recog-nized the U.S. economic growth and gains in employment anticipating a FOMC rate move in late 2015. Very low short-term rates remain, contributing to a sharply positive yield curve. The prospect of a rate hike and higher interest rates in the second half of 2015 should be a component of investment decisions. Public funds investors should make sure that any longer-term investments meet their cash flow re-quirements.

Michael R. Varano is a Managing Director at PFM Asset Management (PFMAM) and portfolio manager for the Pennsylvania Local Govern-ment Investment Trust (PLGIT).

Market Update, Continued

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New GFOA Executive Board ElectedHeather A. Johnston, city manager, City of Burnsville, Minnesota, became GFOA’s new president at the association’s annual business meeting in Philadelphia, on June 25. Johnstonaccepted the gavel from 2014-2015 President Robert W. Eichem, chief financial officer, City of Boulder, Colorado. Also at the business meet-ing, the association’s members elected a new GFOA president-elect and five new members-at-large, who will each serve a three-year term beginning immediately.

President-Elect• Marc Gonzales, director, department of fi-

nance, Clackamas County, OregonMembers-at-Large

• Robert Bishop, deputy city manager, City of St. John’s, Newfoundland

• Jessica Brown-Linton, assistant chief finan-cial officer, Durham, North Carolina

• William Hall, interim director of statewide reporting, State of Vermont

• Terry Stone, assistant superintendent for fi-nance and administration, Henrico County Public Schools, Virginia

• Ben Watkins, director, Florida Division of Bond Finance

Catch up on the 109th Annual ConferenceThe presentations and available outlines from GFOA’s 109th Annual Conference held several weeks ago in Philadelphia are available online and can be accessed by clicking on the respec-

October 2015 The Ledger Page 8

tive session titles here. The GFOA made au-dio recordings of each session so you will be able to bring the conference to your office. The recordings offer a unique learning opportunity regardless of whether you attended thePhiladelphia conference. The recordings can be purchased and downloaded from GFOA’s website. To do so, submit an order form to GFOA, or place your order online using GFOA’s e-store. Sessions will be available in audio for-mat only. CPE credits are not awarded for lis-tening to the recordings

Save the Date for GFOA’s 2016 ConferenceThe GFOA’s 110th Annual Conference will take place on May 22 − 25, 2016, at the Metro To-ronto Convention Centre in Toronto, Ontario, Canada. We encourage you to submit topic and speaker suggestions. Registration for the con-ference and information about first-time attend-ee scholarships will be posted to the GFOA’s website in late fall. U.S. citizens are required to have a current passport to enter Toronto.

Don’t Miss GFOA’s 20th Annual Govern-mental GAAP Update Live-Streaming Train-

ing Event!Learn everything you need to know about the most recent developments in accounting and financial reporting for state and local govern-ments, including the latest GASB statements, exposure drafts, and implementation guidance, during GFOA’s 20th Annual Governmental

GAAP Update live-streaming event on Novem-ber 5, with an encore presentation on Decem-ber 3, 1-5 pm (Eastern), both days. Participants will receive 4 CPE credits. Learn more here.

Register early and save!• Register by October 2 and take advantage

of an early registration fee for the Novem-ber presentation (or register by November 6 to save on the registration fee for the De-cember encore presentation).

• Save with group discounts. Make a day of it and build an event around this training as an affordable way to train staff and/or edu-cate clients.

Download the brochure, which includes a registration form or register online (Please note that group discounts cannot be applied to online registrations.)

Presenters• Stephen J. Gauthier, Director of GFOA’s

Technical Services Center and author of Governmental Accounting, Auditing, and Fi-nancial Reporting (GAAFR or “Blue Book”) and numerous other GFOA publications.

• Steven A. Solomon, Deputy Director of the GFOA’s Technical Services Center and regular speaker and writer on accounting, auditing, and financial reporting topics for the GFOA.

National Representative’s Report