Only Four States Have Money to Fund Promised Obligations
Only four states have sufficient assets to pay their debt and obligations for pensions and retirees' healthcare, according to a report from the Institute for Truth in Accounting.
The study determined six states have per-taxpayer burdens of more than $20,000: Connecticut ($41,200), Illinois ($26,800), Hawaii ($25,000), Kentucky ($23,800), Massachusetts ($20,100), and New Jersey ($34,600). The taxpayer burden represents the funds needed to pay the commitments the state has already accumulated, divided by the number of taxpayers in the state.
"If governors and legislatures had truly balanced each state's budget, no taxpayer's financial burden would exist," said Sheila Weinberg, founder and CEO of the Institute. “A state budget is not balanced if past costs, including those for employees' retirement benefits, are pushed into the future."
Wyoming Sitting Pretty
The study found four states (Nebraska, North Dakota, Utah, and Wyoming) have assets available to pay their debt and obligations related to pension and retirees' healthcare. Wyoming is in the best shape, with a per-taxpayer cushion of $15,100. Nebraska follows with a per-taxpayer cushion of $6,400, followed by Nebraska with $2,500 and North Dakota with $2,200.
All other states owe more than they have on hand to pay their obligations.
The study reviewed each state's Comprehensive Annual Financial Report to offset assets against liabilities. For the first time, a detailed analysis of pension and healthcare liabilities uncovered the states' actual obligations. From these calculations, the Institute was able to determine the taxpayer burden.
Costly ‘Pay As You Go’ Policies
Employee compensation packages include retirement benefits. A portion of these benefits is earned each period and should be included in the current budget as a portion of current employee compensation costs. Instead, most states handle many of benefits on a "pay as you go" basis. This obligates future taxpayers to cover these past costs without receiving any benefits or services.
"Though 49 of the 50 states have constitutional or legal requirements to balance budgets, most states employ a variety of financial maneuvers to circumvent this requirement," said Roger Nelson, IFTA chairman and former vice chairman of Ernst & Young, one of the world’s largest accounting and business consulting firms. "The largest of these maneuvers is related to employee compensation."
Nancy Mathieson (NancyMath@aol.com) is operations director at the Institute for Truth in Accounting.