January is traditionally the time to put the past behind us, turn over a new leaf, and make plans for what’s to come. Many indicators show the country’s economy has been pumping on all cylinders this past year. Stocks are at record highs and the unemployment rate is at its lowest point in 17 years. Many would agree that the economy is moving in the right direction, which is excellent news.
Unfortunately, this optimistic news is somewhat undercut by worsening financial trajectories at the state government level from coast to coast. The nation is not in as good a shape as it seems.
Recently updated government financial disclosures show alarming levels of red ink on statehouse ledger books across the country. A 2017 analysis shows $1.5 trillion in state debt, a 15 percent increase over the previous year and part of a long-term worsening trend. In the last year, only seven states reported improved financials, while three were unchanged, and 40 are on a troubling downward trajectory.
There is a significant variation in the fortunes of the 40 downward trending states, which include examples at both ends of the extreme, such as Alaska’s declining surplus and New Jersey’s skyrocketing $208 billion debt. However, when the data is taken as whole it is hard to understate the scale of the precarious fiscal situation at the state government level. Truth in Accounting, an organization I founded in 2002, analyzes the most recent Comprehensive Annual Financial Reports, and our data shows that the average state now carries a staggering $10,020 in debt for every one of its taxpayers.
TIA’s sister site, State Data Lab, is a statistical resource created to help citizens understand the complex relationship between inputs and outputs that has led to this fiscal tailspin. None of these data points can be interpreted in a vacuum, but a clear image emerges when they are considered as a whole. Across the most financially challenged states, you can find above average public-sector compensation, higher unionization, and more egregious gerrymandering.
These data points hint at some of the intangibles that challenge budgeters at the state government level. But the most illuminating examples are simple increases in public-sector spending that are paid for with the taxpayer’s credit card.
Across all 50 states, we have seen expenditures creep up over the last 10 years in every category. Average state spending on education has increased 31 percent over the decade, spending on health and human services has risen 68 percent, and interest payments on debt have jumped by 36 percent. This spike in public-sector spending far outpaces inflation, and has pushed the average individual taxpayer's burden up from $8,900 in 2009 to $10,020 in 2016.
Increased government spending doesn’t necessarily foretell financial doom if it’s linked with corresponding revenue increases. But most states have opted to cover their spending sprees by unfairly shifting the burden onto future taxpayers, including our children and grandchildren. Vast amounts of money—mostly in public-sector pensions and other post-employment benefits such as retiree health care—have been promised on paper without sufficient funds to back them up.
This short-sighted accounting trick allows governments to claim they have balanced their budgets while artificially deflating their published debt numbers. However, the day will come when they have to decide whether to default on promises made to state workers, or hand the bill to surprised future taxpayers.
These accounting gimmicks amount to financial negligence, and undermine democratic checks and balances. Governors and state legislatures are saying one thing—in the form of bogus bookkeeping—and doing something else without scrutiny from constituents. If voters don’t have access to honest information, they can’t make informed choices at the ballot box. As we close out 2017, let’s set some goals about the nation’s financial trajectory. We deserve governments that live within their means, and above all else, we have a right to honest accounting disclosures from our elected officials.
Sheila Weinberg, CPA, is the founder and CEO of Truth in Accounting, a nonprofit organization that researches government financial data and promotes transparency for a better-informed citizenry.
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