A not so funny thing happened on the way to the release of our Financial State of the Cities. We used 2021 data, because most cities don’t have their 2022 data out yet. For 2021 there were crazy data swings. The most alarming was that San Francisco went from 67th worst city out of 75 to 2nd best. Los Angeles had a similar swing going from 44th worst to 4th best.

I'm sure you've heard the Mayor Lightfoot news by now. 

What does this mean for Chicago? What does this mean for the country?

Chicago ranked second worst in the nation in our most recent report on the fiscal health of our 75 largest cities. 

As the third largest city in our country, Chicago has affected culture and politics.  

How could it not????

The vast majority of state and local governments require their budgets to be balanced, yet most of these government entities continue to face huge shortfalls thanks to unfunded pension and retiree health care promises and short-sighted accounting tricks that are used to make budgets appear balanced.

Government Accounting 101

Why are there different accounting standards for the government and the private sector? 

All of the 75 cities in our latest report and 49 states have balanced budget requirements. Vermont is the outlier.

Our governments produce two basic types of financial reports:

                                   annual reports and budgets.

Annual reports cover past results. Budgets include forward-looking plans and statements of intention.

On Tuesday, Feb. 7th, Truth in Accounting presented to a class of accounting students at the University of Denver and a Zoom audience about our newly released Financial State of the Cities report.

Here is a recording of the event.

Before the presentation, at a team meeting, we discussed ways to explain the differences between government and corporate accounting standards in a "cool" way! (I'm not even sure if "cool" is "cool" anymore!)

The accounting rules our governments make for themselves result in financial reports that mislead the public. Citizens are not receiving the accountability they deserve; they do not have the financial reports needed to responsibly exercise their right to vote.

The federal government does not follow the accounting practices that corporations are required to follow. Instead, the government follows regulations created by the Federal Accounting Standards Advisory Board, a government entity.

To avoid using the accounting rules corporations are required to follow, our federal government established its own standard setting boards. It operates under accounting principles established by the Federal Accounting Standards Board, which it controls.

But Not Government Employees

In 1974, in an effort to protect employees' pensions, the federal government set minimum standards for voluntarily established retirement and health plans offered by employers.  It was called the Employee Retirement Income Security Act of 1974. [ERISA]

By Judi Willard

This year's report highlights the volatility and risk surrounding pension plan assets and corresponding pension liabilities. We found that for most cities in the fiscal year 2021, pension assets increased dramatically because of strong markets. The resulting pension liability and money needed to pay bills decreased equally dramatically. Taxpayers can only hope that when pension plan investments need to be sold to pay for benefits, the market value of those investments will be high. If not, taxpayers will be on the hook to pay higher taxes to cover the promised benefits.

To download the full report on the financial condition of the 75 most populous cities, click here.

A government’s Net Pension Liability is calculated by subtracting the market value of its pension plan assets from the estimated amount of promised benefits. When using the market value of pension plan assets, the Net Pension Liability will fluctuate based upon market conditions. Some argue that because Net Pension Liability is a component of a government’s Net Position (assets minus liabilities), fluctuations in market values would result in great volatility in the Net Position. To avoid such fluctuations, the Governmental Accounting Standards Board allows governments to amortize the fluctuation in market values over time.

How do you know when you are making an impact? 

Truth in Accounting has a few ways of recognizing whether or not we make a difference. But this week, we received the best kind of recognition. The Director of Budget Policy from New Jersey Governor Phil Murphy’s office contacted us. If you don’t remember, they ranked last in our Financial State of the States report this year. READ MORE.

For decades, the goal of increased government financial transparency has been widely shared across political parties and stakeholder groups. The Financial Data Transparency Act (S.4295), proposed by Sen. Mark Warner, D-Virginia, and Mike Crapo, R-Idaho, takes a major step toward openness and accessibility by directing seven financial regulators, including the Municipal Securities Rulemaking Board, to develop "machine-readable" data standards that accurately reflect the existing reporting standards. So, it is surprising that this transparency measure has attracted stiff opposition when it has proven so successful in corporate reporting. READ MORE HERE.