In a speech given late last month, SEC Commissioner Daniel M. Gallagher warned that “for years, state and local governments have used lax governmental accounting standards to hide the yawning chasm in their balance sheets.” According to Commissioner Gallagher, pension funds have been committing two fundamental errors. First they are overstating investment returns. He noted that many funds assume a return of 7.5% and 8% when a 6% return would be more realistic. ...
Perhaps the most disheartening aspect of the Commissioner’s remarks was his frank acknowledgment that government pension funds are not as accountable as the private sector:
In the private sector, the SEC would quickly bring fraud charges against any corporate issuer and its officers for playing such numbers games. And, we would also pursue and punish the so-called fiduciaries who recklessly seek yield to meet unrealistic accounting assumptions. We should not treat municipalities any differently.
Go read the whole thing and then read the speech.