Another Fiscal Year, Another Financial Hole | Commentary
By Sheila Weinberg On Sept.30, the federal fiscal year will end and we will yet again be reminded of our increasing national debt. However, the national debt is not the only thing rising at an alarming rate. There is nearly $1.3 trillion of debt at the state level, which is a huge financial burden for current and future taxpayers.
At Truth in Accounting, we are dedicated to educating and empowering citizens with understandable, reliable and transparent government financial information. Annually, we release our Financial State of the States report, a comprehensive ranking of all 50 U.S. states by Taxpayer Burden.
In our analysis, we identify the Sinkhole States — the five states in the worst financial condition throughout the country. The Sinkhole States are: New Jersey, Connecticut, Illinois, Kentucky and Massachusetts. On average, each taxpayer in the Sinkhole States would have to pay $41,180 to their state’s Treasury in order for the state to be debt-free.
We also identify the Sunshine States — the five states with the best fiscal health. The Sunshine States are: Alaska, North Dakota, Wyoming, Utah and South Dakota. These states have a taxpayer surplus, which is each taxpayer’s share of available state assets after its debt has been paid.
Regardless of whether a state has a taxpayer burden or taxpayer surplus, every U.S. state but South Dakota is hiding pension debt and/or retiree health care benefits from their balance sheets. In fact, we discovered $956 billion in hidden retirement debt nationwide.
This hidden debt is one of the many reasons why a Taxpayer Burden exists in the first place. But, how are state governments allowed to hide pension debt and health care benefits from their financial reports?
Government officials use outdated methods to calculate budgets. Instead of including all compensation costs related to retirement benefits in budget calculations, these costs have been charged to the state’s “credit card.” These outdated accounting methods allow compensation costs to be excluded from budgets, and the money that should have been set aside to provide for these costs was spent elsewhere. By using the state’s “credit card,” elected officials can claim balanced budgets while pushing billions of dollars onto future taxpayers. To make matters worse, states hide this debt off their balance sheets, which is setting up states for fiscal disasters.
As a CPA with more than 30 years of experience in the field, I know how important it is to use accurate accounting methods when reporting financials. It’s unacceptable and irresponsible for state governments to use short-term accounting methods to calculate long-term retirement liabilities. Our methodology produces data that shows each state’s true financial condition.
To calculate the taxpayer burden or taxpayer surplus, we analyze each state’s 2014 audited Comprehensive Annual Financial Report and retirement plans’ actuarial reports. After determining each state’s correct amount of debt, we subtract the state’s available assets and determine the state’s remaining debt (or in some cases the state’s available assets to pay future bills). Then, we divide the remaining debt or surplus by the number of state taxpayers to calculate the Taxpayer Burden or Taxpayer Surplus.
With the off-year election less than two months away and the 2016 presidential election only 14 months away, it’s important for the American people to hold their elected officials accountable for their home state’s financials.
Unless financial data is accurate and transparent, legislators and citizens cannot make informed decisions on the floor or at the polls. I urge Congress and all 2016 presidential candidates to demand accurate accounting immediately. Too many Americans are counting on their promised pensions, and it’s time to update our accounting methods and balance our governments’ checkbooks.
Sheila Weinberg is the founder and CEO of Truth in Accounting.