By Bruce Parker
A new report from a government accounting watchdog group finds that Vermont has a debt of $3.9 billion, despite claims of having a balanced budget.
The Financial State of the States 2015 report, released this month by Chicago-based nonprofit Truth in Accounting, debunks the myth that states balance their budgets.
Unlike most financial accounting done by states, TIA’s accounting method tracks unfunded pension debt and unfunded retiree health care debt. The bean-counting arrives at the real debt states owe.
According to the report, state governments have racked up a combined debt of $1.3 trillion — or $1,328,204,440,079, to be exact.
While states have about $2.4 trillion in debt, they also have about $1 trillion to pay towards that amount, leaving about $1.3 trillion owed. When divided up among U.S. taxpayers, the debt shouldered by each is taxpayer is $13,514.
Ten states have enough assets to pay all of their bills, but Vermont is not one of them, the report shows. In fact, Vermont is the 12th worst when it comes to taxpayer-owed debt.
On the positive side of Vermont’s accounting equation, the state has $3.8 billion in assets. But it also has $1.7 billion in unfunded pension debt, $2.5 billion in unfunded retirees’ health care debt and $3.4 billion in other bills. Together, the bills add up to $7.6 billion, leaving the state’s shortfall at $3.9 billion.
“The -$3.9 billion of money needed to pay bills represents compensation and other costs incurred in prior years that should have been paid in those years. Instead, these costs have been shifted to future taxpayers,” the report states.
Of its total $7.6 billion in bills, 56 percent of that amount is related to unfunded employee retiree benefits. The liabilities have accumulated because the state has promised but not adequately funded state employees $1.7 billion of pension benefits and $2.5 billion of retirees’ health care benefits.
Divided among Vermont taxpayers, the $3.9 billion debt results in $17,200 that each taxpayer owes to the state’s treasury.
Fortunately, a new accounting rule required Vermont to report its pension debt on its balance sheet. As a result, the state’s reported amount of pension debt jumped from $198.2 million reported in 2014 to to $1.3 billion reported in 2015.
Even with that new transparency, “the state is still hiding $421.5 million of pension debt from taxpayers,” the report claims.
Not all regions of the country are equally at fault, according to TIA — the Northeast states are the worst in the nation. New Jersey and Connecticut have per-taxpayer debt burdens of $59,400 and $49,000, respectively, while Massachusetts and New York burdens are calculated at $30,300 and $20,100.
“States in the Northeast have much higher taxpayer burdens than any other region. Even though these amounts may not seem real, taxpayers will suffer, whether it’s through higher interest rates, tax increases or fewer government programs,” said Sheila Weinberg, Truth in Accounting’s founder and CEO.
For many years states have used a variety of tricks, such as inflating revenue assumptions and counting borrowed money as income, to hide debt.
One of the biggest tricks, the report states, is simply to leave large amounts of state employee compensation off the annual budget and balance sheet. State financial leaders justify the accounting method on the notion that states don’t pay out pensions and benefits until employees retire, even though the compensation is a liability owed.
Truth in Accounting, which was formed in 2002 and says it is a nonpartisan group, argues full transparency matters because false claims of balanced budgets make citizens feel safe while their states are drowning in debt. Further, since taxpayers aren’t told the true cost of their state government, lawmakers can get away with spending amounts far beyond what their states bring in through revenues.
The Financial State of the States report isn’t all gloom and doom, however. It praises 10 states for being “sunshine states” — states that have no debt, but instead carry a surplus.
The top five sunshine states and their per-taxpayer surpluses are Alaska ($52,600), North Dakota ($28,400), Wyoming ($26,400), Utah ($4,800) and Nebraska ($3,500).
States that lack the assets to pay all bills are called “sinkhole states” — states that carry a taxpayer burden for each taxpayer. The bottom five sinkhole states and their taxpayer burdens are Massachusetts (-$33,300), Kentucky (-$33,700), Illinois (-$45,500), Connecticut (-$49,000) and New Jersey (-59,400).
Truth in Accounting’s Financial State of the States report can be read online at truthinaccounting.org.
Bruce Parker is a writer for the conservative-leaning news site, Vermont Watchdog, an arm of Watchdog.org, which is released by the Franklin Center for Government & Public Integrity, a non-profit organization “dedicated to the principles of transparency, accountability and fiscal responsibility.”