between the lines (2)

Truth in Accounting, a Chicago, Illinois, nonprofit dedicated to educating and empowering citizens with understandable, reliable, and transparent government financial information, releases an annual report on the health of each of the United States. The report just released reports the following — with grim news for New Jersey:

Government reports are lengthy, cumbersome, and sometimes misleading documents. At Truth in Accounting (TIA), we believe that taxpayers and citizens deserve easy-to-understand, truthful, and transparent financial information from their governments.

This is our eleventh annual Financial State of the States (FSOS) report, a comprehensive analysis of the fiscal health of all 50 states based on fiscal year 2019 comprehensive annual financial reports (CAFRs). This is the most recent available data and represents the states’ finances before the global coronavirus pandemic and lockdowns.

At the end of the fiscal year (FY) 2019, 39 states did not have enough money to pay all of their bills. This means that to balance the budget — as is required by law in 49 states — elected officials have not included the true costs of the government in their budget calculations and have pushed costs onto future taxpayers. TIA divides the amount of money needed to pay bills by the number of state taxpayers to come up with the Taxpayer Burden. If a state has money available after all bills are considered, that surplus amount is likewise divided by the number of taxpayers to come up with the Taxpayer Surplus. We then rank the states based on these calculations.

We have also implemented a grading system to give greater context to each state’s Taxpayer Burden or Taxpayer Surplus. Based on our grading methodology, three states received As, eight received Bs, 14 received Cs, 17 received Ds, and eight states received failing grades.

States in general do not have enough money to pay all of their bills. The total debt of the 50 states amounts to $1.4 trillion. Our analysis does not include debt related to capital assets. Most of this debt comes from unfunded retirement benefit promises, such as pension and retiree healthcare liabilities. This year, pension debt accounts for $855 billion, and other post-employment benefits (OPEB) totaled $617 billion. Furthermore, we have estimated that the 50 states could lose $397 billion in revenue as a result of the coronavirus pandemic.

New accounting standards from the Governmental Accounting Standards Board (GASB) required states to disclose pension benefits (GASB 68) and retiree health care benefits (GASB 75) on their balance sheets in recent years.

TIA believes it is imperative to provide an honest accounting of each state’s financial condition. Therefore, we developed a model to analyze all the assets and liabilities of all 50 states, including unreported liabilities. We are also working to change the way the general fund is accounted for so citizens and others can determine whether their state’s budgets were truly balanced.

Truth in Accounting recommends FACT-based budgeting and accounting, which stands for full accrual calculations and techniques (FACT). FACT-based budgeting and accounting moves beyond cash-basis to provide more accurate and truthful budgeting and financial reporting documents.

Since all levels of government derive their just powers from the consent of the governed, government officials are responsible for reporting their actions and the results in ways that are truthful and comprehensible to the electorate. Providing accurate and timely information to citizens and the media is an essential part of government responsibility and accountability. The lack of transparency in financial information, state budgets, and financial reports makes it difficult for governments to meet this democratic responsibility.

This is the motivation and foundation for the nonpartisan mission of TIA: to educate and empower citizens with understandable, reliable, and transparent government financial information. TIA is a 501(c)(3) nonprofit, nonpartisan organization composed of business, community, and academic leaders interested in improving government financial reporting. TIA makes no policy recommendations beyond improvements to budgeting and accounting practices that will enhance the public’s understanding of government finances.

TIA ranks each state based on its Taxpayer Burden or Taxpayer Surplus. A Taxpayer Burden is the amount of money each taxpayer would have to contribute if the state were to pay all of its debt accumulated to date. Conversely, a Taxpayer Surplus is the amount of money left over after all of a state’s bills are paid, divided by the estimated number of taxpayers in the state. We split the states into two groups. States that lack the necessary funds to pay their bills are called Sinkhole States, while those that do have enough money are referred to as Sunshine States.

New Jersey has held its last-place position since 2014 and needs $57,900 from each state taxpayer to pay off the debt accumulated through fiscal year 2019. New Jersey’s financial condition will most likely worsen as a result of the coronavirus pandemic. The state is considering borrowing more money to help “balance” its budget, but this will cause the state’s overall debt to increase.

Alaska remains in first place in our ranking because our analysis includes the state’s “Earning Reserve Account” as assets available to pay bills. This treatment is in line with the state’s audited financial report, which indicates the state had more than $36 billion in “spendable” assets. Alaska’s surplus breaks down to $77,400 for every state taxpayer. If Alaskans are willing to dig deep into the state’s reserves, the state might have enough money to ride out the effects of the global pandemic.