San Diego Law Review


Israel Klein

Library of Congress Authority File


Document Type



[T]his article provides support for the “Public Employee Pension Transparency Act” (Transparency Bill). The Transparency Bill, introduced in all 111th to 114th Congress—however not yet became law—proposes making tax benefits related to bonds issued by a state or political subdivision conditional upon compliance with specific reporting requirements, regarding post-employment financial liabilities, established by Congress. However, and more importantly, the Article points to the fact that the Transparency Bill only deals with a symptom of a much deeper problem—the ability of public sector entities to “shop” their disclosures and therefore to avoid accountability and scrutiny. This Article proceeds as follows: In Part II, I review the institutional arrangements currently governing disclosures both for the business sector and the public sector; the normative framework that established the Financial Accounting Standards Board, the “FASB,” as the prominent accounting promulgator for the business sector; and the historical circumstances that led to the creation of the GASB as an alternative and almost equal authoritative standard setter for the public sector. In Part III, I discuss the existing justification supporting privatization of disclosure standard setting. I explain why these justifications, originally developed in the context of the business sector and the delegation of accounting standard setting powers from the SEC to the FASB, do not hold up in the case of the public sector. In Part IV, I discuss the implications for sovereignty of privatizing accounting standard setting for public entities. I explain how setting disclosure standards affects the ability of the public to control the public entity, its accountability, and the incentives given to the entity’s executives to serve the public good. In Parts V and VI, after the full meaning of delegating accounting standard-setting powers and the lack of justification thereof are brought to light, I turn to discussing how the GASB, the current prominent private accounting standard-setter for the public sector, has exercised its delegated powers. I expose how the GASB acted differently than other accounting standard-setters such as the Federal Advisory Board—a difference that contributed to the development of the current pension crisis. In Part VII, the last section of the Article, I draw directly from the lessons learned from the development of the pension crisis and the lack of justifications for accounting privatization in the public sector and propose reducing the extent of privatization involved in setting accounting standards for the public sector. My proposal focuses on providing state and local governments with incentives for replacing voluntary use of GASB standards with compulsory use of those of the Federal Advisory Board.