The Leaflet: Trillion-Dollar Burden

Published October 5, 2018

Only 10 states are in the black financially, according to the latest release of Truth in Accounting’s Financial State of the States (FSOS). This comprehensive report analyzes every state budget and ranks them by their taxpayer surplus or, more often, burden in fiscal year 2017.   

The 10 states with the largest taxpayer surpluses, listed from largest to smallest, are Alaska, North Dakota, Wyoming, Utah, South Dakota, Idaho, Tennessee, Nebraska, Oregon, and Iowa. On the flipside, the 10 states with the largest taxpayer burden are: Vermont, New York, California, Delaware, Hawaii, Massachusetts, Kentucky, Illinois, Connecticut, and New Jersey, respectively. The Garden State earned the lowest grade due to its $195.5 billion shortfall, or $61,400 for every taxpayer. California has the biggest overall debt shortfall of about $270 billion, but its large population dilutes its taxpayer burden to $22,000 

All 50 states have accumulated a whopping $1.5 trillion in unpaid bills. Most of this debt is due to posh pension plans and benefits promised to government workers for decadesLast year, pension debt accounted for $837.5 billion, and other post-employment benefits—mainly retiree healthcare costsequaled $663.1 billion. Even worse, two-thirds of the post-employment benefit unfunded liabilities, $439.5 billion, was not reported on states’ balance sheetsFSOS refers to this as “hidden debt.” New York led the way with an outrageous “hidden debt” of $69.7 billion. 

It may seem surprising that every state, except Vermont, has a balanced budget requirement because only 10 states actually produced a positive balance sheet. How do states with a constitutional mandate to annually balance their budgets continually rack-up huge deficits? Very simple, state bureaucrats employ accounting tricks such as inflating revenue assumptions, counting borrowed money as income, and delaying the payment of current bills until next fiscal year.  

According to Truth in Accounting, the most common trick is to exclude state retiree benefits from the budget. Although states become obligated to pay these benefits during employees’ tenure, these benefits won’t be paid out until employees retire. When states fail to include retiree costs in their annual budgets, they fail to add money into the pension funds and miss out on much-needed investment earnings. 

Truth and transparency are words not usually associated with governments on any level. When taxpayers do not know the condition of their state’s financial house, it makes it easier for politicians to continually advocate for big-ticket government programs and unsustainable perks for public employees and politically connected businesses. It also helps politicians get reelected based on false claims of a balanced budget. Fortunately, FSOS shines a bright light on the dark underworld of state budget accounting gimmicks. 


What We’re Working On 

Budget & Tax 
Largest Vaping Survey Finds Flavors Play Important Role in Tobacco Harm Reduction 
In this Research & CommentaryState Government Relations Manager Lindsey Stroud examines a survey of nearly 70,000 adult vapers in the United States. The survey was completed in response to the U.S. Food and Drug Administration’s recent Advanced Notice of Proposed Rulemaking, seeking comment on the role of flavors in tobacco products. The authors found that nearly 95 percent of survey respondents were ever smokers and the majority reported using flavors at the point of e-cigarette initiation. Stroud compares this to other surveys finding that “eliminating flavors will force [vapers] to vape only tobacco-flavored e-cigarettes, which would likely cause them to return to combustible cigarettes.” Research has found e-cigarettes to be a key tobacco harm reduction product and could help alleviate state budgets by mitigating health care costs.  

Health Care 
Virginia Needs to Add Work Requirements to Medicaid 
In this Research & CommentarySenior Policy Analyst Matthew Glans explores legislation to add work requirements to Virginia’s recent expansion of Medicaid. Work requirements help to maintain the viability of Medicaid programs as costs increasingly rise. Glans wrote, “Medicaid should focus on encouraging able-bodied recipients who are enrolled in these programs to become more self-sufficient and less dependent on government aid. The real focus of these programs should be to provide temporary or supplemental assistance while encouraging work and independence.”  

Energy & Environment 
New Peer-Reviewed Study Confirms Safety of Hydraulic Fracturing in Texas 
In this Research & Commentary, Policy Analyst Tim Benson writes about a new peer-reviewed study from researchers at the University of Texas at Austin that found there is no link between methane in groundwater and natural gas production in Texas’ Barnett Shale region. The study was published in the academic journal Water Resources Research in August 2018. The researchers conducted samples from more than 450 water wells across 12 Texas counties, and concluded that the methane detected in their samples was naturally occurring. This is the fifth, and last, in a series of studies of the Barnett Shale region by this group of researchers. 

Ensuring Child Safety at School Through Safe Student Scholarships 
Parents often list school safety as the most important attribute they look for when choosing a school. Ensuring student security requires school leaders and policymakers to consider the many factors at play in school safety. This Heritage Foundation event, presented in conjunction with The Heartland Institute, features a conversation about the next steps for ensuring every child has access to a safe and effective school. The panel features Heritage Vice President John Malcolm, Heritage Senior Policy Analyst Jonathan Butcher, Benson, and Cato Institute Policy Analyst Corey DeAngelis.  

From Our Free-Market Friends 
Public Servants Ask Us to Support Higher Taxes 
Edward Ring, co-founder of the California Policy Center, analyzes the cash-strapped state and local employee retirement system, CalPERS, especially in light of recent political ads asking voters to raise state taxes. Specifically, Ring analyzes firefighter and police officer compensation and retiree benefits. The average pay and benefits for a California firefighter is $145,938 for those working for the state and $196,370 for those employed by cites. In the city of Chula Vista, for example, the Fire Battalion Chief earned $327,491 in 2017, including $99,887 of overtime. Right now, the city’s payments for both its firefighter and police pensions will grow from 33 percent of payroll in 2017 to 53 percent of payroll by 2025. 


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