Government transparency and accountability are two issues surfacing this election. Well-known examples include Donald Trump’s resistance to releasing his tax returns, Secretary Hillary Clinton’s murky answers about her private email server and both of their resistance to releasing comprehensive health-related files. In addition to the presidential election, but not receiving as much attention, state-based politicians and government officials are also struggling with transparency and accountability producing inaccurate financial reports and making downright false claims. These actions, state-by-state and taken as a whole, are leading us toward a significant, national crisis.
Across the country, states have racked up $1.3 trillion in debt. In fact, 80 percent of states are in debt, meaning 40 out of 50 states do not have enough money to pay their bills. Yet every state, except for Vermont, has balanced budget requirements. Seems contradictory, right?
The worst offenders include New Jersey, Connecticut, Illinois, Massachusetts and Kentucky. The taxpayer burdens — or the amount each taxpayer would need to pay the state’s treasury in order for the state to be debt-free — for these states are massive. New Jersey has the highest taxpayer burden with each taxpayer owing $59,400; Connecticut has the second highest with each taxpayer owing $49,000; and Illinois has the third highest with each taxpayer owing $45,500. How long until one of these states is in the next Puerto Rico situation, requiring a federal bailout?
There are many accounting tricks government officials use to disguise the truth about state finances. These accounting tricks include counting borrowed money as income, delaying the payment of current bills until the start of the next fiscal year and inflating revenue assumptions. However, the biggest accounting trick of all is excluding a large portion of government employee compensation, such as pension benefits, off the balance sheet. In fact, every U.S. state but South Dakota uses this trick. Employee compensation costs may not seem like a serious issue because retirement costs are not paid until the employees retire. However, if those costs are excluded from budgets, the money that should have been set aside to provide for these costs is spent elsewhere. The result: state lawmakers don’t have a true understanding of their state’s financial situation, claim to balance their budgets while a majority of states go further in the red, and taxpayers are left to clean up the mess.
According to states’ 2015 financial reports and related retirement plans’ actuarial reports, there is $573.4 billion of hidden retirement debt across all 50 states. This amount has decreased significantly compared to last year as a result of a new accounting rule. But more transparency is needed because states are continuing to report inaccurate figures and are pushing billions of dollars onto future taxpayers.
Additionally, states are not producing timely financial reports. The deadline for states to publish their Comprehensive Annual Financial Report (CAFR) is 180 days after the end of their fiscal years. But the national average for publishing these reports is currently 192 days. Compare that to the timeline of corporate financial reports, which is within 45 days of their respective fiscal year ends. Why is it so difficult for state governments to produce timely reports when they have more than four times as long as corporations? In fact, Alabama has still not released its CAFR as of September 13, 2016, which is 170 days late.
The first step to tackle this issue is for states to increase transparency and report all debt. Without accurate reporting, how can state governments create an effective plan to address the problem? The second step is for lawmakers at all levels to take accountability and address the perilous financial situation of their state’s finances. The truth: time is running out for state lawmakers to gain control of their state’s finances. And sooner or later taxpayers will started to feel the effects, whether it’s through higher interest rates, tax increases or fewer government programs.
What can taxpayers do? Think twice before casting your ballot for the state election this year and demand fiscal transparency and accountability from your state officials before this situation becomes even more of a national crisis.
• Sheila Weinberg, a certified public accountant, is the founder and CEO of Truth in Accounting.