Last month, Truth in Accounting released the eleventh edition of our flagship Financial State of the States report. I cannot believe it's been 11 years since we began this endeavor to bring citizens truthful and timely government financial information.
A lot has changed since we began this report in 2009. We started reporting on state finances in the midst of the worst financial crisis since the Great Depression. As we release this year’s report, we are in the midst of a pandemic that no one could have predicted.
In recent years, we have helped change accounting standards for the better. The Governmental Accounting Standards Board (GASB) now requires states to disclose liabilities related to their pension benefits (GASB 68) and other post-employment benefits (GASB 75) on their balance sheets. Our reports have always included these previously undisclosed liabilities. Our methodology has not changed since 2009, so we have 11 years of consistent data that reflects the new accounting standards.
Unfortunately, the majority of states claim balanced budgets by shortchanging their retirement obligations. At the end of fiscal year 2019, total unfunded pension liabilities among the 50 states were $855 billion. We found that the 50 states have only set aside 65 cents on average to fund every $1 of promised pension benefits.
Even worse, for every $1 of promised retiree health care benefits, the 50 states have only set aside seven cents on average to fund these promises. State workers, teachers, firefighters, and police officers have been promised these benefits but their employer, the state, has set aside little money to fund them. Instead, state governments are pushing current compensation costs onto future taxpayers who will not receive the services of these employees.
The bottom line is that the majority of states do not have enough money to pay their bills and were unprepared for the coronavirus pandemic. You may see headlines about your state having a “budget surplus” or rainy day fund, but these are accounting tricks. Total debt among the 50 states amounts to $1.4 trillion, which has only worsened since 2009. The states had 10 years to recover from the worst economic crisis but they didn’t. Furthermore, we have roughly estimated that the 50 states will lose a combined $397 billion in revenue as a result of this pandemic. I’m afraid our twelfth edition of this report will only deliver more bad news.
But we are working to change things for the better. You can help us stop the accounting tricks and continue to improve accounting standards. We are looking for people to join us in an email campaign that would encourage a change in accounting for state governments’ general funds. FACT-based accounting would allow you to look in your state’s financial report to determine if the budget was truly balanced. Please contact me if you would like to join us in this initiative.