It is widely known that the United States has trillions of dollars in federal debt, but the real contributing factors to the growing $27 trillion, are intentionally kept secret from the public eye. At the local level, a majority of states are in just as bad of shape. Unfunded liabilities, inflating revenue assumptions, and accounting savviness have allowed states to fabricate their true financial health and accumulate over $1.4 trillion in debt.
Truth in Accounting (TIA) released their 11th annual Financial State of the States report to bring attention to impending financial disasters at the state level. While 49 states have some form of balanced budget provision (all except for Vermont), only 11 truly have enough money to pay all of their outstanding bills. TIA’s Financial State of the States report shows tax-payers how the debt will affect their current civic responsibilities. Thus, by dividing the amount of money owed by the number of state taxpayers TIA provides a tangible number highlighting the ‘Taxpayer Burden’ imposed by state debt.
As Sheila Weinberg, founder and CEO at TIA explained, most of the financial instability at the state level is a direct result of unrealistic government promises in relation to pensions and other retirement benefits. “What we find is that the states that are in bad shape are the ones that have gotten heavily into unfunded pensions and retiree debt,” she explained. “So the larger, more robust pension or retiree healthcare plans that you see, the governments seem to not be able to manage those.”
While retirement benefits will not be paid until employees actually retire, they still represent current compensation costs. Since states generally use cash-basis budgeting, pensions and retiree healthcare liabilities are oftentimes not accounted for in state budgets. Politicians use cash-based budgeting to hide extra costs that have the potential to hurt them politically. This antiquated accounting method includes cash inflows and outflows, and checks written, but doesn’t address unfunded liabilities whatsoever. This year, state-level pension debt accounts for $855 billion. Truth in Accounting works tirelessly to expose bad budgeting practices such as cash-based budgeting through their in-depth analyses.
State-level accounting is regulated by the Governmental Accounting Standards Board (GASB), who points out that the intent of these regulations is to “require financial and spending practices that enable governmental entities to avoid financial difficulty and to live within their means.” Another objective of balanced budget requirements is accountability; elected officials should be accountable for the tax dollars they spend. They should not be able to shift the burden of paying for current services and benefits to future taxpayers. Additionally, state-level insolvency makes it almost impossible for states to manage unexpected crises (say, an international pandemic).
“We’re encouraging everyone to work with us and send an email to GASB,” concluded Weinberg, “to say ‘Hey, you need to change this accounting so I can go to my government’s audited financial statement, and find a good accounting of the general fund so I can determine if the budget was truly balanced.’”