Luzerne County government’s overall net worth may suffer a major blow in the 2015 audit because of two changes, the county’s auditors warned Tuesday.
The first involves the employee pension fund. The Government Accounting Standards Board, commonly known as GASB, now requires government entities to incorporate pension fund liabilities into their overall bottom lines.
The county, which must follow these standards under the home rule charter, had a $64 million pension fund liability — the difference between assets and future obligations — at the end of 2013. The fund’s actuary is tallying a new figure for 2014 that will be used in the county’s 2015 audit.
The second development stems from the county Flood Protection Authority’s move to independence. The authority, which oversees the Wyoming Valley Levee system, is no longer part of county financial records. As a result, the county cannot claim the authority’s $277 million in capital assets in the county audit.
As a result of both issues, the county’s overall net position could drop from $172 million at the end of 2014 to a negative $169 million the end of 2015, said Andrea L. Caladie and Adam Hartzel, of Baker Tilly Virchow Krause LLP.
They delivered the news during council’s budget, finance and audit committee meeting Tuesday night.
School districts and government entities across the country are experiencing plunging net worth in audits as a result of the pension fund reporting requirement, said Caladie and Hartzel.
They stressed the county’s pension liability was disclosed in past audits, even though it wasn’t part of the final tally.
“It’s not a new liability. It’s always been there,” Hartzel said of the pension figure.
The change forces governments to undergo big-picture, future analysis similar to that of corporations and businesses in addition to focusing on annual general fund operating budgets, Hartzel said.
Credit rating agencies and financial institutions use the audit information when they evaluate government entities, although they may be adjusting expectations because the new pension requirement is causing many major net worth drops.
Standard & Poor’s drastically downgraded the county’s credit rating last year from investment grade to speculative, citing the county administration’s insufficient monitoring of finances and council “political gridlock.”
Committee members Linda McClosky Houck and Eugene Kelleher repeatedly urged the administration Tuesday to promptly supply financial information to the outside auditor to meet the June 30 home rule audit deadline.
The aggressive deadline was imposed because audits sometimes were years behind under the previous government system. However, the county has failed to fully meet the June 30 deadline since home rule took effect in 2012.
The 2014 draft audit was released by June 30, but the final audit was not issued until September. It concluded the county ended 2014 with a general fund deficit of $16.9 million.
County acting Manager C. David Pedri told the committee meeting the deadline is a top priority. The budget/finance department is down only one staffer, and that position should be filled in several weeks, he said. The department has completed bank reconciliations that are normally finished in March or April.
“We’ve learned from our mistakes,” he said. “For 2016, we expect to see some major output.”