National GFOA Issues—Overview and Update

1. National GFOA Issues—Overview and Update North Carolina GFOA Wrightsville Beach, NC July 14, 2008

2. Presentation Overview • Introductions & Acknowledgments • GASB Update • National Performance Management Advisory Commission • Municipal Bond Market Reform Proposals & Federal Initiatives • Succession Planning

3. Acknowledgments

4. NCGFOA Participation at the National Level • Standing Committee Representatives: • Committee on Cash Management: • John Sofley, Vice Chair, • Committee on Retirement and Benefits Administration: • Denise Bell, Vice Chair • Barbara Avard • Committee on Governmental Budgeting and Fiscal Policy: • Bill Rivenbark, Advisor • Committee on Economic Development and Capital Planning • John Vogt, Advisor • Executive Board Representation: • Pat Pate, Past President • Perry James, Past Executive Board Member • CPFO Participation • Solicitation for Standing Committee applications • Application deadline: August 22, 2008

5. GASB Update

6. Service Efforts and Accomplishments (SEA) • SEA = performance measurement • Relationship to financial reporting • Private-sector financial reporting • Accountability for financial stewardship • Also measures performance (profit motive) • Public-sector financial reporting • Accountability for financial stewardship • Does not measure performance (no profit motive)

7. Points of Agreement • Traditionally, public-sector financial reporting does not measure performance • Performance measurement reporting is needed

8. Points of Disagreement • Proper locus of performance reporting • GASB – financial reporting • GFOA – budgetary reporting • Proper scope of GASB activity • GASB – accountability defined broadly (i.e., both financial and nonfinancial) • GFOA – accounting, as traditionally understood

9. History of GASB SEA Project • NCGA Concepts Statement No. 1, (1982) • GASB Concepts Statement No. 1, (1987) • GASB Concepts Statement No. 2, (1994) • GASB technical agenda project (2007)

10. Future of the GASB • Specific problems • GASB expanding scope of work well beyond accounting and financial reporting as traditionally understood • SEA and economic condition reporting • GASB moving toward less rather than more convergence • Underlying problem • Standards being driven by supply rather than demand

11. Future of the GASB (cont.) • Option 1 • GASB restricts itself to setting cost-effective standards of accounting to meet demonstrated needs • Option 2 • Transfer standard-setting authority to FASB • Envisioned by FASB Concepts 4 • Consistent with convergence • Little likelihood of supply-driven standard-setting

12. Clarifications on GFOA’s Position • No change in fundamental GFOA position • Goal: Independent standard setting on a national basis • Changing role of FASB limits this as a standards setting option • SEC approval for international accounting standards • GFOA Executive Board action in February 2008

13. Progress to Date on GASB Issues • GASB Exposure Draft on changes to Concept Statement No. 2 (SEA) • Clarifies that it is beyond the scope of GASB to: • Establish goals and objectives of state and local government services • Establish non-financial measures of performance • Set standards for service performance • Continued ability to appoint public sector members to the Financial Accounting Foundation • Continued dialogue regarding scope of GASB’s standard setting authority: • Revisit Concept Statement No. 1

14. National Performance Management Advisory Commission

15. “The purpose of the Advisory Commission shall be to develop a comprehensive conceptual framework for public sector performance management which will form an integrated set of principles to guide state and local government in their performance management efforts.” Purpose of the Commission

16. Sponsoring Organizations • Association of School Business Officials International • Council of State Governments • Government Finance Officers Association   • International City/County Management Association • National Association of Counties • National Association of State Auditors, Comptrollers and Treasurers • National Association of State Budget Officers • National Center for State Courts • National Conference of State Legislatures • National League of Cities • U.S. Conference of Mayors

17. Principles Based Framework • Identify general approaches that are characteristic of successful performance management • Emphasize the value of data-driven decision making • Support state and local government implementation and improvement of performance management • Reflectissues and challenges associated with performance management from a broad range of perspective • Adaptto the unique and diverse environments found for state and local governments

18. National Performance Management Advisory CommissionWork Plan Summary Summer 2008 STAFF PROJECT WORK Meeting 1: Organize Project & Develop Priority Issues Areas Phase I: Research Research and Identify Issues Related to Implementation of Performance Measurement System (PMS) Fall 2008/ Spring 2009 Meeting 2: Review Research on Practices and Case Studies Meeting 3: Define Practice & Select Case Studies Phase II: Analysis Organize Hearings/Panel Presentations on Practice Areas; Develop Preliminary List of Practice Areas; Identify Case Studies Recommended Practice Statements Self-Assessment Tools Phase III: Recommendations Examples of Practices in Action Meeting 4: Review Draft Report*; Develop Release and Communication Strategies Develop Draft Report and Send to Commissioners for Review and Comment; Develop Draft Release Strategy; Revise and Issue Comment Draft; Revise and Finalize Winter 2009 *Depending on number/intensity of comments received during comment period an additional meeting may be scheduled Phase IV: Post-Commission Training, Tools ,Support, Incentives to Implement Performance Measurement Systems Consistent with Guidelines

19. National Performance Management Advisory Commission • For more information, check the website: www.pmcommission.org

20. Municipal Bond Issues & Federal Legislative Initiatives

21. Current Regulatory Framework • Tower Act amendment added to the 1934 Securities Act in 1975 when Congress created the Municipal Securities Rulemaking Board • Key elements of the Tower Act: • Prohibits the SEC or the MSRB from requiring municipal issuers to file reports or documents prior to the sale of bonds • Places disclosure requirements on the underwriters of bonds, not the issuers

22. SEC Rationale for Reform • San Diego, CA: Inadequate pension disclosure • Miami, FL: Failure to disclose cash flow problems • Maricopa County, AZ: Failure to disclose material decline in financial condition • Syracuse, NY: Misleading and/or false financial information • Orange County, CA: Failure to disclose material information regarding investment risks

23. SEC Reform Proposals • Require municipal issuers to make offering documents and reports available to investors, similar to the corporate market • Use of an EDGAR-like system to distribute municipal offering documents and reports • Mandating GAAP • Provide for independent funding of GASB • Apply corporate style registration and disclosure standards to non-governmental conduit borrowers • Ensure appropriate disclosure standards are established for municipal issuers • Clarify legal responsibilities of issuer officials for authorized disclosure documents

24. GFOA Position on SEC Reforms • Need to recognize the profound difference of the municipal market: • Much municipal debt is backed by the full taxing power of the issuer • Risk of default is extremely low, and default rates are much lower than comparably-rated corporate credits • Governments, by their very nature, are extremely transparent: • Website dissemination of information • Reporting of events in the local media • Public meetings • Regulatory compliance comes with a price tag • Failure to follow existing rules is not an argument for more rules • GFOA has provided leadership in the area of disclosure since the 60’s

25. Municipal Market: Disclosure • Disclosure Central Repository: EMMA • www.emma.msrb.org: PILOT Launched 3/31 • Web-based • Primary market data • Search feature • Education center • Next step: continuing disclosure documents • Change in SEC Rule 15c2-12 • Free for issuers • Free for investors

26. Municipal Market Turmoil • Municipal bond legislation • Purchaser Incentives, H.R. 6333 • Increase bank qualified limit to $30 million • Allow banks to purchase munis, in addition to bank qualified debt • Review of Bond Insurers, H.R. 6308 • Department of the Treasury must review and report to Congress on the business practices of the bond insurer industry • Uniform Rating Scales, H.R. 6308 • Credit rating agencies must use uniform scale for all securities before they can be certified as an accredited rating agency by the SEC

27. Housing Bill: Pending • $10b for mortgage revenue bonds to help homeowners refinance existing mortgages • Increase in volume cap and Non-AMT • New Community Development Block Grants to help govts purchase/refurbish foreclosed homes • New standard property tax deduction tax credit for purchase of foreclosed homes • Allow FHLB to guarantee Letters of Credit • Home builder aid

28. Legislation: 3% Withholding • 3% withholding and annual reporting requirement on government payments • Applies to governments that spend > $100m/year on goods and services • Governments must withhold 3% to all vendors (with some exemptions) and remit that 3% to the federal government • All payments to all vendors must be reported annually to the IRS • Begins January 1, 2011 • House passed one year delay; Senate action pending • Unfunded mandate (ignored by Congress) • Legislative efforts to repeal (S.777, S.2394, H.R.1023)

29. Cell Phones: Fringe Benefits • 1989 Rules on employer provided cell phones still In place • Cell phones as “listed property” • Does not work with today’s technology/pricing structure • Legislation passed house to remove cell phones from listed property definition • Treat as a working condition fringe benefit • Senate legislation pending S. 2668

30. Remote Sales Tax • Streamlined sales tax project • New sourcing provision – adopted 12/2007 • States may chose: • Destination sourcing for all sales • Origin sourcing for in-state sales; destination sourcing for out-of-state sales • 22 states on board, including North Carolina • Federal legislation – S. 34 and H.R. 3396 • Provides federal authority for mandatory collection of taxes on remote sales • KEY PROBLEM: Both call for state and local govts to simplify their communications taxes before being able to collect taxes on remote sales • Local govts: Keep the two issues separate. We could lose more with “communications reform” than we could gain with new remote taxes • www.streamlinedsalestax.org

31. Outlook 2009 • Banking Reform • Tax Reform • Infrastructure Financing • Social Security • Health Care • Initiatives of New President

32. Succession Planning

33. Employee Demographics • City of Portland • More than half the employees are 45 or older • More than one-third are over age 50 • Generally age 58, or 30 years service, is normal retirement eligible under Oregon PERS (less for police and fire) • Early retirement for general service employees is age 55 • Early retirement for public safety employees is age 50

34. The Retirement Wave (or Tsunami):OMF Employees by Age

35. GFOA’s Role in Succession Planning • Strengthen relationships with the educational community • Develop partnerships with under-represented groups • Assist with recruitment strategies • Training to support retention and promotion • Mentor new and mid-career finance officers