Question: The governor and his college age daughter are talking after
The governor and his college- age daughter are talking after dinner. The governor has had a rough day at the office discussing the state’s budget problems. The daughter is home on vacation after having completed a course in municipal accounting. She has just told her dad about the substance of this chapter in this text. “That’s great,” says the governor, “you just solved my problem. I’ll tell my budget director to prepare the budget using those wonderful GAAP rules you just described. We’ll save money by firing our actuary because his ideas about financing pension and retiree benefits cost too much. We’ll save more money by budgeting zero dollars for pensions because the pension plan has enough resources to pay benefits to retirees for several years. And we’ll save even more by budgeting just enough for retiree health care benefits to pay the bills of our retirees, rather than putting money into a fund to pay for those currently working.” The governor’s daughter looks at him and says: “Hold on a sec, Dad, you’re getting me a bit worried.” What did his daughter say about “those wonderful GAAP rules” that caused the governor to reach his conclusion? Why is his daughter worried?
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