Forbes: 40 U.S. States Cannot Afford To Pay All Their Bills

Mayra Rodriguez Valladares, Forbes 

40 states do not have enough money to pay all of their bills, according to quantitative analysis in Financial State of the States, the ninth annual report published this evening by Truth in Accounting (TIA). TIA is a non-partisan, not-for-profit government finances watchdog. To balance the budget, “elected officials have not included the true costs of the government in their budget calculations and have pushed costs onto future taxpayers.” TIA’s comprehensive analysis of the fiscal health of all 50 states is based on the states’ fiscal year 2017 comprehensive annual financial reports (CAFRs).

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TIA’s analysis found that because government financial statements do not report all liabilities of a state, elected officials and citizens are making financial decisions without knowing the true financial condition of their government. A major challenge for investors is the lack of transparency and accuracy in a lot of government accounting. This makes it difficult for even experienced analysts of government financial documents and municipal bond investors to understand and evaluate a public-sector entity’s true financial health.

The total unfunded debt among the 50 states increased by $53.4 billion to more than $1.5 trillion in fiscal year 2017. Most of this debt comes from unfunded retiree benefit promises, such as pension and retiree healthcare debt. TIA’s analysis found that unfortunately “one of the ways states make their budgets look balanced is by shortchanging public pension funds. This practice has resulted in a $837.5 billion shortfall.” Other post-employment benefits, mainly retiree healthcare liabilities, totaled $663.1 billion.

States with a surplus are Alaska, North Dakota, Wyoming, Utah and South Dakota. Alaska is the state in the best financial condition, because it can pay all of its bills and has a surplus of $56,000 for each taxpayer in Alaska.

The state in the worst financial shape is New Jersey.  It only has $25.5 billion available in assets to pay $221 billion worth of bills. This $195.5 billion shortfall means that each New Jersey taxpayer is on the hook for $61,400.  The state did report all of its pension debt, but according to TIA the state “continues to hide $34.3 billion of its retiree health care debt.  Moreover, New Jersey’s net position is “inflated by $27.7 billion, largely because the state defers recognizing losses incurred when the net pension liability increases.”  Other states that are leaving their taxpayers with significant tax burdens include Connecticut, Illinois, Kentucky, Massachusetts, Hawaii, Delaware, California, New York, and Vermont.