Thirty-one states, or over two-thirds of US states, don’t have enough cash to pay their bills. For the thirteenth year in a row, the impartial accounting watchdog Truth in Accounting (TIA) released its Government Financial Health report on Tuesday, detailing the weak fiscal health of many countries.
To balance the budget as required by law in 49 states, “elected officials have not included the true cost of government in their budget calculations and have passed the cost on to future taxpayers,” according to TIA’s methodology.
TIA divides the amount of funds required to pay bills by the number of state taxpayers to generate what is known as the taxpayer burden. TIA’s analysis is based on the latest available government finance data; For most states, fiscal year (FY) 2021 ran from June 1, 2020 to June 30, 2021.
At the end of fiscal 2021, all states had a total debt of $1.2 trillion, up 26% from fiscal 2020. This news is worrying, especially in an environment of rising inflation and an environment where some economic indicators are threatening us bring close, or even in a recession. The borrowing costs of the most indebted countries will rise, making it even more difficult to solve their fiscal challenges. If unemployment starts to rise, it will exacerbate states’ fiscal challenges.
The fact that thirty-one states are now unable to pay their bills is an improvement from 2018, when forty states were unable to pay their bills; By 2021, the number had improved to thirty-nine states. When I asked Sheila Weinberg, CEO of TIA, what was responsible for an apparent improvement in government finances, she said that “temporary record gains in stock markets during this time and the Covid relief money. Governors are claiming surpluses while their financial reports and pension plan numbers suggest their state is heavily indebted. Governors only look short-term while taxpayers worry about the future.”
As in previous years, unfunded pension obligations made the largest contribution to government debt. Weinberg explained that “one of the ways states make their budgets look balanced when they aren’t is by cutting public pension and OPEB funds. This practice has resulted in a $699 billion shortfall in pension funds and a $665 billion shortfall in OPEB [other post-employment benefits] Middle.”
Elected officials have promised these retirement benefits to employees, including teachers, firefighters and police officers, but unfortunately most state governments have not allocated sufficient funds to pay for these benefits. The total unfunded pension liability in the fifty states of $699 billion means that the states have saved only seventy-two cents for every $1 in promised pension benefits.
The states that are in best shape are the same as in 2021, with Alaska being in best shape. TIA calls a state that is in good shape a “Sunshine State”. Alaska had $41.5 billion available to pay $15.4 billion worth of obligations. Alaska’s long-term debt declined primarily due to a drop in unearned income and recognition of coronavirus relief funds.
Unfortunately, New Jersey’s fiscal position is in the worst state of any fifty states, down from last year when it was 29thth. This is the thirteenth consecutive year that New Jersey is in the bottom 5 sinkhole state category; It was the only state to experience a deterioration in its financial position. “The money needed to pay bills increased by more than $12.5 billion. As in all states, New Jersey’s pension plan assets experienced significant short-term increases in value, but the state’s share of its net pension liability increased as they assumed new pension responsibilities from their local governments,” according to the TIA report.
On a positive note, in September New Jersey received good news from Moody’s Ratings that the credit agency had changed its outlook on New Jersey to positive from stable. Moody’s cites New Jersey’s “healthy fund balance sheets and strong tax revenues that have enabled full pension payments and some debt repayments. The state’s improved reserves put it in a better position to withstand potentially less favorable economic and revenue trends in the coming year.” Moody’s rating, however, reflects New Jersey’s long-term liability and fixed cost burdens, which are much higher than most states.
Connecticut also received good news from Standard and Poor’s, which revised its outlook for the state to positive from stable. S&P said that during times of economic and revenue growth, Connecticut restores fiscal reserves that could protect its finances from a recession. No doubt taxpayers and ratings analysts will be watching how this plays out over the coming months.
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