This article was published by The McAlvany Intelligence Advisor on Monday, September 30, 2019:
Until just a few years ago, states were able to hide the real condition of their finances. Now, however, the truth is coming out. Thanks to new rules that states are required to follow, and efforts by a Washington, DC think tank, full accounting for all pension and healthcare benefit promises is now available for every taxpayer to see. The news isn’t good.
In its latest report, Sheila Weinberg, head of Truth in Accounting (TIA), which prepares and publishes its Financial State of the States report every September, said:
At the end of the fiscal year (FY) 2018, 40 states did not have enough money to pay all of their bills. This means that to balance the budget – as is supposedly required by law in 49 states – elected officials have not included the true costs of the government in their budget calculations and have pushed [unreported] costs onto future taxpayers.
While most states report that they are making efforts to fully fund their pension plans, in the past they weren’t required to account for liabilities for pensioners’ healthcare costs. Now they are.
For example, the state of New York touts its fiscal responsibility by reporting that it has funded 93 percent of its pension liabilities. But, under the new full disclosure rules, the state has been forced to reveal that it has only funded one penny out of every dollar of its enormous retiree healthcare obligations.
Added together, those 40 states – the worst of which TIA refers to as “sinkhole” states – owe more than $1.5 trillion in total debt. When it divides each state’s unfunded liabilities by the number of each state’s taxpayers, the truth is staggering: each taxpayer in New Jersey (50th on the list) owes $65,100 in order for the state to meet its promised obligations. Illinois is right behind, with each taxpayer liability calculated to be $52,600.
There is some “sunshine,” but precious little. Only three states received As for their fiscal condition, seven received Bs, 13 received Cs, 18 received Ds, while the rest earned failing grades of F for their fiscal irresponsibility.
Four of the five “sunshine” states – Alaska, North Dakota, Wyoming, and Idaho – are enjoying surpluses thanks largely to their booming energy industries. But all five are behaving responsibly with their surpluses. TIA lauded Utah for its careful and prudent financial management:
Utah’s taxpayers and residents benefit from some of the most responsible financial management practices in the nation. Utah has the best record among the 50 states in keeping expenses below revenues.
In fact, Utah has done that every year since 2005 – even during the Great Recession. For FY 2018, Utah has a Taxpayer Surplus of $5,300.
Utah also produces some of the timeliest financial reports in the nation.
On the other hand, leaders in Connecticut (48th) are frittering away their state’s healthy financial condition by deliberately underfunding that state’s promises:
Connecticut’s overall financial condition improved slightly from the previous fiscal year. The amount of Connecticut’s debt related to unfunded retiree health care benefits slightly decreased, but the state still needs $51,800 from each state taxpayer to pay off the debt accumulated to date.
While some focus on Connecticut’s strong economic indicators, such as personal income, the state is not setting enough money aside to pay for promised benefits, including unfunded pension and retiree health care promises.
Adding to the woes of “sinkhole” states is the exodus of high-income individuals. Lee Wallace, a resident of Illinois, is one of those who hasn’t left yet, but plans to shortly:
I live in Illinois. Lifelong Illinoisan. Yes, I know it sucks. My five-year plan is to leave the state before it collapses financially and my home value plummets. Property taxes, sales taxes, and income taxes are insane over here. DO NOT MOVE HERE….
I live outside of Chicago in the suburbs. Yes there are lots of jobs and opportunity here, so that’s good – but beware: Illinois is a house of cards that is near its tipping point, financially speaking. The unfunded pension debt is unsustainable and among the worst in the country.
It shouldn’t surprise that the states with the most red ink flowing are the bluest states politically.
TruthinAccounting.org: Financial State of the States 2019
TruthinAccounting.org: The full report
CrainsNewYork.com: Watchdog gives New York’s finances an F
TheNewAmerican.com: Financial Crisis Looming for NYC as It Teeters on the Edge of Bankruptcy