Most pundits and media are trying to figure out what the posture of politicians in front of the cameras really means for President Biden’s Build Back Better Pans. Yet far below their radar is the poor financial health of the majority of US states. “The State Financial Statement,” a report released earlier this week, shows that 39 states do not have enough money to pay their bills, potentially leaving a significant tax burden on current and future residents of their states. . According to Sheila weinberg, CEO of The truth in accounting, a non-partisan, non-profit accounting watchdog, “Despite federal help received from the CARES Act and other grants related to COVID-19, the majority of state finances have deteriorated. The total debt of the 50 states stood at $ 1.5 trillion at the end of fiscal 2020, which was just the start of the COVID-19 pandemic. ”
Pension plans, such as retirement benefits and retiree health care, account for the majority of government debt. TIA’s analysis shows that, on average, the 50 states had set aside just 64 cents to fund pension promises and 8 cents to fund retiree health care promises. “The market downturn in early 2020,” Weinberg explained, “has caused many public pension plans to make far less money than is needed to cover ever-growing liabilities. can’t make up the investment gaps, then taxpayers have to make up the difference. ”When states don’t have enough money to pay their bills, TIA takes the money to pay the bills and divides it by the estimated number of state taxpayers. The resulting number is a Taxpayer Burden ™. The average tax burden in the 50 states increased 27% to $ 9,300 from the previous year.
Connecticut replaced New Jersey as the state with the worst fiscal health and the highest per capita tax burden, $ 62,500. Connecticut only had $ 16.8 billion, or 17% of the funds needed to pay $ 96.3 billion in bills. Connecticut was catapulted to last place due to pension plan liabilities that grew faster than investment income.
What is concerning is that many states are balancing their budgets using a lot of flexibility in their accounting. According to TIA, these “accounting tips include:”
• Inflate income assumptions
• Count borrowed money as income
• Underestimating the real costs of government
• Delay payment of current invoices until the start of the next fiscal year so that they are not included in budget calculations
Investors in state bonds as well as lenders to state should be aware that the most common accounting trick used by states is to hide a large portion of employee compensation from the budgeting process. Employee compensation programs include health care, life insurance, and pensions. Weinberg explained that “unfortunately some elected officials have used some of the money owed to pension funds and the OPEC to keep taxes low and pay for politically popular programs. This is like charging for vested benefits on a credit card without having the money to pay off the debt. Instead of funding the benefits promised now, they were charged to future taxpayers. The shifting of benefits payments to future taxpayers allows the budget to appear balanced as government debt increases. “
On a positive note, Alaska remained in first place in TIA’s rankings, as its analysis includes the state’s Earning Reserve Account among the assets available to pay bills. This treatment is consistent with the state’s audited financial report, which shows the state had over $ 32 billion in “constable” assets. Alaska transferred money from the general fund to the permanent fund, resulting in a $ 6.5 billion decrease in state funds available to pay future bills. Nonetheless, Alaska still had a surplus of $ 55,100 for every taxpayer in the state. Despite the fact that Alaska had a lot of money to deal with the COVID-19 pandemic, it received federal help.