Unfunded retirement liabilities are the main contributing factor to state-level debt, according to a new report from conservative think tank Truth in Accounting (TIA). Pension debt accounts for approximately $824 billion of the estimated total $.5 trillion of unfunded liabilities in US states.
According to TIA’s 10th annual Financial State of the States (FSOS) report, which analyzes the fiscal health of all 50 states based on fiscal year 2018 comprehensive annual financial reports (CAFRs), the most fiscally healthy states were Alaska, North Dakota, and Wyoming. States in the worst shape were New Jersey, Illinois, and Connecticut.
The report said that despite a robust economy in 2018 that lowered total debt among all states by $62.6 billion, there were 40 states that did not have enough money to pay all of their bills as of the end of the fiscal year 2018.
“This means that to balance the budget – as is supposedly required by law in 49 states,” said the report, “elected officials have not included the true costs of the government in their budget calculations.”
In calculating the rankings of the US states TIA divides the amount of money needed by a state to pay bills by the number of state taxpayers to come up with what it calls the “Taxpayer Burden.” And if a state has money available after all bills are paid, then that surplus amount is also divided by the number of taxpayers to come up with the “Taxpayer Surplus.”
In its report, TIA refers to states with a taxpayer surplus as “sunshine states,” and calls sates without the funds to pay its bills “sinkhole states.”
Only 10 states were bestowed with the sunshine state designation: Alaska, North Dakota, Wyoming, Utah, Idaho, Tennessee, South Dakota, Nebraska, Oregon, and Iowa. Alaska was deemed the top sunshine state with a surplus of $74,200 per taxpayer. TIA said Alaska’s positive financial condition increased by $3.4 billion mainly due to the state’s permanent fund generating a large amount of investment income. North Dakota was a distant second with a $30,700 surplus per taxpayer, followed by Wyoming ($20,800), Utah ($5,300), and Idaho ($2,900).
At the other end of the spectrum, the biggest so-called sinkhole state was New Jersey, which had a burden of $65,100 per taxpayer, followed by Illinois and Connecticut, at $52,600 and $51,800 respectively. Behind them were Massachusetts and Hawaii, each of which had a debt of approximately $31,200 per taxpayer.
TIA said while the implementation of new accounting standards from the Governmental Accounting Standards Board (GASB) has brought greater transparency to state government finances, “there is still much work to be done,.