Much is made of the federal government’s debt, but what about
debt at the state level? It may not have reached such eye-poppingly
high figures, but it’s still a matter of concern. In its sixth
annual Financial State of the States report, the nonpartisan
accounting group
Truth
in Accounting (TIA) took a full account of government assets and
liabilities. It found that even though many states claim to have
balanced budgets, state governments have in fact accumulated a
combined debt of $1.3 trillion.
“As a CPA looking at government finances, I found they were not
being truthful and transparent about their financial condition,”
Sheila Weinberg, founder of TIA, told Watchdog.org. “For
years, citizens have been told that their home state budgets have
been balanced. If that were true, state debt would be zero and
Taxpayer Burden would simply not exist.”
She argues the generally accepted accounting standards the
government uses are flawed for
two
reasons. First, she suggests that Government Accounting Standards
Board that controls how the standards are set is not as
independent as it sounds. Second, she notes that the government
always has the power to tax, which reduces the incentive for sound
fiscal policy – because if and when it comes up against a wall,
it can always tax its way out.
Watchdog reporters covered the report and looked at the
ramifications for their states. Here’s a state-by-state snapshot of
what they found:
Seeing red in the Green Mountain State
Vermont’s
$3.2
billion in debt may not seem huge compared to many of its
counterparts, but with its relatively small population, Vermont’s
budget shortfall works out to $14,300 for every taxpayer.
“The most common budget trick involves excluding pension
benefits from annual budgets, according to the report,”
wrote
Watchdog reporter Bruce Parker. “Financial officers keep those
liabilities off their balance sheets because the expenses don’t
have to be paid until state employees retire. By ignoring expenses
incurred in the present but paid in the future, states can claim to
be balancing their budgets. In reality, the costs are being shifted
to future taxpayers.”
These accounting tricks mean states like Vermont are in for a rude
awakening next year. Weinberg said 2015 will be the last year they
are used nationally, as standards have changed. Next year, states
will have to add their pension liabilities to their balance sheets,
and in 2017, retiree health care liabilities will also be added to
state balance sheets.
A fuzzy picture
In Mississippi, Watchdog reporter
Steve
Wilson found that his state’s taxpayers weren’t getting the
entire picture of Mississippi’s financial health. The law requires
the state legislature to send the governor a balanced budget, so in
order to eke out more spending, the proposed budget uses certain
accounting principles to show only $139 million of the pension fund’s
liability.
In reality, however, the Public Employees’ Retirement System of
Mississippi, the state’s defined benefit pension plan for most
state, county and municipal employees, has $4.6 billion in
liabilities.
More
trouble in the Northeast
Ranking just below Vermont and well below Mississippi in
debt-per-taxpayer is
Pennsylvania.
The state neglected to list $53 billion on its balance sheets,
ranking third among the 10 Northeast states in hidden debt. In total,
the Keystone State’s debt works out to $15,600 per taxpayer, the
11th highest in the nation.
Watchdog reporter
Andrew
Staub explains how spending can get out of control but still
remain largely hidden: “Much of that debt can be traced to
retirement benefits, which represent more than 50 percent of state
bills. The unfunded liabilities have accumulated, as the state
promised billions of dollars in benefits to retirees without
adequately funding them, according to Truth in Accounting.”
The New York exodus
New York State was another hefty spender with $77 billion in
unfunded liabilities for an average of $20,700 per taxpayer –
second highest in the Northeast. Watchdog Arena writer
Nicholas
Fondacaro noted that each taxpayer’s share could grow even
larger if New York’s exodus of workers continues.
Not so sunny in Sacramento
When California Governor Jerry Brown released his spending
proposal last June, the
Los Angeles Times wrote that
California’s budget was “flush with cash.” The state claimed it
had cut spending by $6.6 billion from 2013 to 2014, but due to
obfuscating by the aforementioned accounting methods,
TIA
found that California’s hidden debt actually amounts to $111
billion.
From bad to worst
At the bottom of the pack is New Jersey, which TIA ranks as the
worst spender with $160 billion in debt, or $52,300 per taxpayer.
Upon further investigation by New Jersey Watchdog, however, reporter
Mark
Lagerkvist noted that the report actually
understates
the debt, and the proper figure is actually $10 billion higher. The
discrepancy stemmed from a new valuation in State Treasury records
that found New Jersey’s responsibility for unfunded retiree and
employee health benefits has increased to $65 billion.
Local governments in New Jersey have troubles of their own. “The
$170 billion hole does not include the debts of New Jersey’s local
government units, which face a collective shortfall of $50 billion
for pensions and health benefits,”
wrote Lagerkvist.
“Nor does it encompass the bond debts and other liabilities of the
state’s 21 counties, 565 municipalities and 610 school districts.”
Not all doom and gloom
Though the overall picture is bleak, the debt situation isn’t
quite as troubling in some states. Nebraska’s financials, for
example, are actually
in
decent shape. The state has $5 billion in liquid assets and $3
billion in bills, for a “surplus” of $2 billion — or $2,800 per
taxpayer. Even though Nebraska’s pension funds are mostly funded,
the report found that it still hides some debt, but it’s in a much
more manageable position than any of the aforementioned states.
Is there any hope?
Even though
49
out of 50 states have balanced budget requirements (Vermont being
the exception), TIA identifies 39 states that have dug “financial
holes” for themselves, while only a handful currently run true
budget surpluses. The first step in reforms of any kind is
transparency, which TIA and Watchdog.org have focused on providing in
our coverage of state debt. Government has proven more
responsive to the electorate and much more capable of reform at the
state level, so there’s still an opportunity for many of these
states to turn their financial situations around.
This entry was posted on Tuesday, September 29th,
2015 at 3:52 pm and is filed under Blog.
