OPINION:
Wednesday marks the 49th anniversary of the establishment of Medicare and Medicaid, two government programs whose budgets have ballooned, thanks to a growing population in need — and federal budgeting and accounting tricks. Now with the possibility of another government shutdown looming in the face of a short-term funding bill, there will be another round of conversations about the role these programs play in expanding federal spending.
The states’ entitlement spending is also ballooning. On average, state Medicaid spending more than doubled between 2001 and 2011. This spending — and the financing of promised state employees’ retirement benefits — are consuming an ever-increasing portion of state budgets.
For the most part, the growth in the state retirement costs has been hidden from the public. Through budgeting and accounting gimmicks, state governments have been able to hide the fact that promised retirement benefits were underfunded by more than $900 billion in 2012.
Nationally, states have accumulation of more than $1 trillion in unpaid bills, including pension and retirees’ health care benefits. Through the use of accounting tricks, these bills have amassed, despite legal requirements for balanced budgets in 49 states. As a result, almost all American states are in a financial hole. If citizens are going to hold their elected officials accountable, this practice must stop.
What now exists is a “taxpayer burden” representing the amount each taxpayer would have to send to their state’s treasury to fill in that financial hole. Truth in Accounting’s research indicates the taxpayer burden is more than just a number: High taxpayer burdens are linked to lower quality of life, poor highway systems and the sluggish recovery of home prices.
If state budgets had been balanced, no taxpayer burdens would have accumulated. Taxpayer burdens exist because costs, including compensation costs related to employees’ retirement benefits, were incurred by states in prior years, but the responsibility for paying these costs has been shifted unto future taxpayers.
Truth in Accounting has expressed its concern and sounded the alarm for years about the financial conditions of the states. We are the only think tank to pore over all 50 state budgets to analyze their true deficits and debt. Our analysis confirms that the concerns of worried citizens are justified.
We are releasing a study this week that shows just how poorly states are accounting for their deficits and debt, in large part owing to swelling entitlement costs.
This year, in our fifth year of the study, we have identified the top four “sinkhole” states. Each has a per-taxpayer burden of more than $23,000. Connecticut’s taxpayer burden is $48,100; Illinois’, $43,400; New Jersey’s, $35,200; Hawaii’s, $31,200. In contrast, we identified five “sunshine” states. Alaska, North Dakota, South Dakota, Utah and Wyoming all have a per-taxpayer surplus. They have more than adequate assets available to pay their obligations. These five states are paragons of fiscal responsibility.
The principal reason for the creation of taxpayer burdens is the deficient accounting policies used to calculate state budgets and financial reports. Collectively, states have maintained more than $900 billion in retirement system liabilities off-balance sheet. Since states leave retirement funding and other unfunded liabilities out of their budget calculations, the public cannot independently determine the states’ financial conditions.
The thing is, too few Americans know the extent of their state’s financial problems. While other organizations have compared the states’ unfunded retirement liabilities, this study determines the overall financial condition of every state.
True change cannot happen until policymakers on Capitol Hill and throughout America’s statehouses recognize the fiscal danger our states are in, and the truly dangerous effects current accounting practices can have, leaving a mess for future Americans to clean up for generations.
Sheila Weinberg is founder and CEO of Truth in Accounting.
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