Fiscal Stress Permeates Government Accounting Rule Writer’s Work

Trump administration cuts to federal funding are trickling down to cities and states across the country—and a top public-sector accounting leader is taking note.

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Governmental Accounting Standards Board Chair Joel Black is leading his team in crafting public sector financial reporting rules at a time when local governments are assessing resource constraints following cuts to funding resulting from the 2025 GOP tax law.

The board establishes financial reporting and accounting rules for state and local governments that follow generally accepted accounting principles, or GAAP. Municipal bond insurers, taxpayer groups, and research institutes are among those that use government financial reports to analyze fiscal health.

The board’s work during the height of the Covid-19 pandemic informs its efforts now during another period of strain for governments.

“It really honed us in to be sure we’re working on only those things that are significant improvements, only those things our stakeholders are really asking us to work on,” Black said.

Black’s board is currently undertaking a project that aims to improve financial reporting rules for governments grappling with fears they won’t be able to meet their financial obligations.

In this week’s Talking Tax, Black sat down with Bloomberg Tax reporter Jorja Siemons to discuss GASB’s financial stress-related project and the resource challenges accounting teams are facing.

Do you have feedback on this episode of Talking Tax? Give us a call and leave a voicemail at 703-341-3690.

This transcript was produced by Bloomberg Law Automation.

TRANSCRIPT:

Host (David Schultz):

From Washington, I’m David Schultz, and this is Talking Tax.

Trump administration cuts to federal funding are trickling down to cities and states across the country, places that in many cases already have pretty tight budgets. Many of these cuts came in the 2025 GOP tax law, also known as the One Big Beautiful Bill Act. It also imposed new administrative procedures on programs like nutrition assistance.

This is all a concern for today’s guest, Joel Black, chair of the Governmental Accounting Standards Board, also known as GASB. GASB creates accounting rules for state and local governments that report their finances using Generally Accepted Accounting Principles, or GAAP.

Joel Black spoke with Bloomberg tax reporter Jorja Siemons about how government financial stress can play out in the real world and about GASB’s priorities.

Joel Black:

The impact is different for different states and different local governments, depending upon how much federal funding they receive, how dependent they are on it, and that sort of thing. So, the reacting is different depending upon who you talk to, but certainly they’re all talking about it.

Jorja Siemons:

And what are they saying about how that impacts their accounting, their ability to create these financial reports and have a good sense of how they’re doing financially?

Joel Black:

You know, this is a longstanding, I don’t want to say issue, but it’s a topic for governments. There was an AICPA and National Association of State Auditors, Controllers, Treasurer’s report that said governments don’t value financial reporting quite the way the private sector does. So, they don’t put as many resources on it. So, we’re almost kind of used to our stakeholders having strained resources in their finance departments and then accounting and financial reporting.

And so, I haven’t heard that really changing because of the funding cuts, but I do think governments are still figuring out how they’re going to react and respond to those government cuts, again, depending upon how dependent they are on them.

Some governments, ones that have their own income taxes, are often tied directly to the federal government. And so, when the federal government cuts their tax rates, the state’s income tax, for example, is automatically cut unless they somehow kind of sever that tie and change it accordingly. And so, the states that are directly tying their income to those tax revenues of the federal government are having to look at that. Otherwise, it’s depending upon the type of program and how much federal funding you have for it, governments are having to react.

Jorja Siemons:

Do these cuts to federal funding and the changes under the One Big Beautiful Bill Act, does that alter the board’s calculus as a standard setter? Does it make you more wary of imposing projects that could impose compliance burdens?

Joel Black:

I don’t think so, Jorja. Yeah, we’re always paying attention to our environment and the stakeholders, the environment that they’re in. They’re always strained for resources in the finance department. So, we have been, for a while now, very conscious of that and only want to undertake projects and make them change their accounting, change their processes, spend time on something they otherwise wouldn’t have to to implement a standard. We’ve always been really conscious of that, or certainly for the last several years.

And so, while we do think about the environment and try to react accordingly and help our stakeholders as much as we can, I don’t think that that has changed it from the way we’ve been operating for the last several years.

Jorja Siemons:

Have you heard any new concerns in light of the recent events when you talk to governments about their capacity to be able to make changes to their accounting?

Joel Black:

We have not heard anything new as a result of these funding cuts. I do think governments are still trying to figure out how they’re going to respond to that. As of now, though, I haven’t heard anything about finance department resources being strained.

Jorja Siemons:

GASB is pursuing a project right now actually on accounting for severe financial stress that, among other things, aims to identify when governments should disclose their exposure, that strikes me as an interesting time to be doing a project like that during a time when governments are experiencing financial stress. What have you learned during the project so far about the state of financial stress in local governments, and how could that accounting be improved?

Joel Black:

That project is all about disclosure as well. Severe financial stress is a very subjective term. We haven’t yet seen impacts from the more recent budget cuts enough to probably change the historical research we’ve done over what causes financial stress in governments that gets to a point where some governments might declare bankruptcy, for example, or are in the news for the financial stress enough.

We’ve done a lot of research on how that’s happened over the past few decades, what caused it, and there are a lot of different reasons, and it often happens very slow over time, but sometimes certain things can happen that impact it. This could be another one of those things, certainly something we’ll pay attention to, but I don’t think we’ve seen it, kind of the results of it enough to know whether it adds anything new to that project as we consider putting criteria in the standards to help a government evaluate and determine when are they, quote unquote, in severe financial stress enough to have a disclosure like that in their financial statements.

Jorja Siemons:

You talked about how people that use government financial reports could benefit from risk-related disclosures. How could improvements to financial stress reporting benefit those groups when they’re thinking about the decisions that they make after reading about a government’s fiscal health?

Joel Black:

Certainly. We kind of view severe financial stress as a step beyond the risk. The risk is something is going on, risk is heightened, may not have happened yet, but it might happen specifically related to concentrations or constraints. The severe financial stress doesn’t matter if it’s a concentration, a constraint, or what has caused the government to get in that situation, but it’s a condition they’re actually in. It’s not about trying to look forward as much as it’s, we’re in it now, and here’s some disclosures about that.

Some people would say, if my government isn’t in threat to cease to exist, because it legally can’t cease to exist, some governments can’t even legally declare bankruptcy, I don’t have to worry about these kinds of disclosures at all, I wouldn’t disclose anything. Other people look at the requirements and say, yeah, but my government, or this government is in such really bad financial shape, if it could go out of business, it would, and so they would have those disclosures, and so we really, I think, users would inconsistently get disclosures about financial stress, and the new project is really meant to make these kind of amend the going concern literature, or replace the going concern literature with something that makes sense in the government environment, so that ceasing to exist might be a part of it, but you can be, as a government, in severe financial stress, irrespective of whether or not you’re going to continue to exist, and then you would have those disclosures, so I think the improvement will come through the consistency, and users will get it more often because now we know it always applies to a government, even if it may not cease to exist.

Jorja Siemons:

I want to turn to another obstacle local governments are facing, which is personnel. Are you concerned that given staffing levels, the board will run into problems trying to change accounting rules about infrastructure or other topics? It seems like a balancing act, right? There’s a perceived need to change the rule book, but there’s also obstacles to staffing that could actually achieve those changes, so how does that weigh into your calculus, and what do you think about that going forward?

Joel Black:

This comes back to the beginning of our conversation, and when my term started, it was 2020, pandemic, everybody was worried about government resources, and so we really tried to focus on only the projects we thought would be significant improvements in the financial report, but as we’ve come through that, we hear a little bit different things. We heard there was an accounting pipeline shortage discussed for a little while, and the accounting profession as a whole has had some reactions to that. I think that it might be just kind of a norm for governments because if you really go back and look at even comment letters we received prior to the pandemic, governments were worried about the resources they had available to them in their finance operations.

I think they kind of always will be because governments are always very conscious of the money they spend. It’s taxpayer money, and so they’re trying to use it, as little of it as they can, and keep taxes as low as they can, and anytime they might have some resources to expand personnel, it’s probably much more palatable to add a firefighter or a teacher than it is an accountant, and so I think it’s just something we have to always be conscious of, and I think we’ve done a really good job of that and focusing only on the projects we think of those significant improvements, listening to our stakeholders, only undertaking projects when it is helpful to those stakeholders, but like you just said, it’s a balance, right? We have user stakeholders that we have to think about. We have those preparing governments, stakeholders that we have to think about, and so we do try to balance making the improvements that the users need, understanding the cost and burden that largely is putting on the preparers, and trying to balance the types of projects we work on to get that, but also within each of those projects, make decisions, cost-benefit decisions to try to maximize the benefit to the user while minimizing the cost to the preparer.

Jorja Siemons:

How do you think local governments could improve accounting recruitment and attract more CPAs into this sector of the profession, just from your own perspective, thinking about local governments every day as a standard setter?

Joel Black:

This kind of comes back to the heart of why I ended up in government, working for public accounting firms my entire career prior to joining the GASB, but serving state and local governments. I think there’s just a public service aspect, really there is, to being a CPA, but I think a CPA that works with or for a government just certainly adds a new layer of public service that I think a lot of people are interested in doing, especially this younger generation. They really seem to want to work in a profession that they feel like is benefiting their society.

We should talk about that as government accountants and how much you are using those accounting skills and maybe that accounting background that you liked and you were attracted to as a student, and then using it for a really high level of public good or public service by working for or with governments. I think that’s something we should work to advertise as best we can.

Jorja Siemons:

Moving forward, you mentioned the guiding principle of only working on projects that you think would provide substantial material benefits because of the strained resources. How would you define that? What do those projects look like given that you wrap up your tenure as chair in June 2027, so a year and a half from now? What are your guiding principles about what types of projects you want the board to pick up or continue to work on given the strain on resources? It seems like that’s an interesting challenge, right?

Joel Black:

Jorja, I’ve been talking about this actually a fair amount recently. I like to put them in three buckets where these kind of what can be a significant improvement. One is maybe the most traditional one, which is users are asking for new types of information or more information, and the external financial report is the right place for that information. That can be a significant improvement by adding that requirement.

We can fill in a gap in GAAP, which means there’s some new type of complex transaction like environmental credits or digital assets, cryptocurrencies, for which perhaps the current GAAP doesn’t address very well. We can help our stakeholders and the preparers by telling them what the rules are to account for this new thing that they really are trying to figure out how to account for.

A significant improvement can also be a reduction in the requirements, right? A reduction in burden. And so I think those are the types of projects that maybe we haven’t traditionally worked on a lot, but are things that we’re looking at considering as we move forward.

Jorja Siemons:

Going back to 2020, you started this role as GASB chair in a time of financial stress for many governments with COVID-19, with the height of the pandemic and stress about federal funding and the administrative costs and burdens of trying to lead governments during a pandemic. You’re leaving the board next year in perhaps another time of financial uncertainty for governments under the Trump administration changes that we’ve discussed earlier. How does that experience leading the board during the height of the pandemic influence your leadership now and your thoughts about in what state you want to leave the board when your tenure as chair wraps up? What are your reflections from that time?

Joel Black:

Sure, Jorja. I think it really honed us in to be sure we’re working on only those things that are significant improvements. Only those things our stakeholders are really asking us to work on. And I think that if we kind of remain that way for the rest of my term and into the future, and we focus on what our stakeholders want us to be working on and work on those significant improvements, then I think we will be okay. We will be achieving our mission and the standards should be reflective and allow for an appropriate financial report that’s cost-beneficial as much as it can be for our state and local governments.

Host:

That was Joel Black, chair of the Governmental Accounting Standards Board, speaking with Jorja Siemons. And that’s it for today’s podcast. You can find up-to-the-minute news on the latest tax and accounting developments at our website, news.bloombergtax.com. That website, once again, is news.bloombergtax.com.

Today’s episode is produced by myself, David Schultz, and our editor was Amelia Gruber. From Washington, I’m David Schultz. Thanks for listening.