Executive Summary of The Financial State of the States
Released by Institute for Truth in Accounting
Most states are sinking in debt. Despite the existence of a balanced budget requirement in all but one state, governors and legislatures have dug huge financial holes. The lack of truth and transparency in state budget processes has concealed the accumulation of $1 trillion of outstanding bills.
What now exists is a “taxpayers’ burden” representing the amount which every taxpayer would have to send to their state’s treasury to fill in that financial hole. If governors and legislatures had truly balanced each state's budget, no taxpayer's burden would have accumulated. But budgets have been ‘balanced’ by pushing past costs, including those for employees' retirement benefits, into the future.
The Institute for Truth in Accounting (IFTA) has expressed its concern and sounded the alarm for years about the financial conditions of the states. This study confirms that our concern and the concerns of worried citizens are justified. The top five “Sinkhole states” each have a per taxpayer burden of more than $23,000.
- Connecticut $41,200
- New Jersey -$34,600
- Illinois - $26,800
- Hawaii - $25,000
- Kentucky - $23,800
In contrast, four “Sunshine states” (Nebraska, North Dakota, Utah, and Wyoming) have more than adequate assets available to pay their debt and obligations related to pension and retirees' healthcare. Data for this report is derived from 2009 financial reports and related retirement plans’ actuarial reports.
The principal reason for the creation of taxpayer’s burdens is deficient accounting policies of which politicians have been too willing to take advantage. While Generally Accepted Accounting Principles set by the Governmental Accounting Standards Board are improving, our study found that states have hidden more than $823.7 billion of retirement systems’ liabilities off-balance sheet. The opaqueness of retirement plans disclosures makes it impossible for even seasoned Certified Public Accountants to determine with certainty the true amount of these unfunded liabilities.
The Institute for Truth in Accounting is proud to note that this study is the first of its kind. While other organizations have compared the states’ unfunded retirement liabilities, this study determined the overall financial condition of every state. This study takes into consideration all assets and all liabilities, including those related to retirement systems. We determined that a comparison of states’ unfunded retirement plans’ liabilities, without consideration of state’s other financial commitments and assets available to pay these, would be incomplete. This is especially true when some states issue bonds to fund retirement plan contributions.
To put an end to budget shenanigans the Institute has developed a budgeting system called “Full Accrual Calculations and Techniques”. FACT based budgeting would require governors and legislatures to recognize expenses when incurred regardless of when they are paid. This improved method of accounting is discussed in detail in this report. We believe that if FACT based budgeting had been used by state governments over the past 50 years, the states would not be in the high financial risk they are dealing with today.
Full Text: The Financial State of the States