The nation’s Democratic-controlled states have unfunded debt that is 12 times greater than the burden on taxpayers in states under total Republican control, according to a study released Tuesday.
The nonprofit group Truth in Accounting published “Financial State of the States,” which analyzes the public finances of all 50 states. The group found that state governments have accumulated $1.5 trillion in long-term debt nationwide, mostly due to unfunded employee pension and retiree health benefits.
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In general, the fiscal picture is far worse in blue states. The average unfunded debt per taxpayer is $22,214 in the states that have Democratic governors and Democratic majorities in both legislative houses. That compares with an average taxpayer burden of $1,814 in states with a so-called Republican “trifecta.”
States with divided power are in the middle, with an average taxpayer burden of $14,350.
“It’s a symptom of a much larger problem that states are really not balancing their budgets, even though they say they are,” said Sheila Weinberg, founder and CEO of the organization.
The report names 41 states that do not have enough money to pay all their bills. Pension debt accounts for $832.6 billion, while retiree health debt totals another $614.9 billion. Although nearly every state has a balanced budget requirement, Weinberg said some have more stringent requirements than others.
The report identifies a number of “accounting tricks” states use to hide the debt from their balance sheets. It states that employee compensation packages include benefits such as health care, life insurance and pensions. States become obligated to pay those expenses as employees earn them, but the governments do not actually have to make the payments until those workers retire.
To obscure the debt, some states:
- Inflate revenue assumptions, making it appear as though tax collections will be greater than are likely to be the case.
- Count borrowed money — which must eventually be paid back — as income.
- Understate the true costs of government.
- Delay the payment of current bills until the start of the following fiscal year, so those expenses are not included in the calculation.
“That’s how they get away with that,” Weinberg said. “We just find that some states have done a better job of not promising as much.”
[lz_table title=”‘Sunshine States’ vs. the ‘Sinkholes'” source=”Truth in Accounting”]Unfunded debt per taxpayer
|Five best states
|Five worst states
Take New Jersey, which Truth in Accounting ranks as the worst in the nation. It is one of nine states with a grade of “F” and a burden of more than $20,000 per taxpayer in unfunded liabilities. For years, Democratic legislators have passed generous public employee benefits. Republican Gov. Chris Christie tried — and largely failed — to rein in that long-term spending.
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Truth in Accounting calculates that the Garden State owes $208.9 billion in unfunded debts, for a burden of $67,200 per taxpayer. Unfunded pension benefits total nearly $118.9 billion, with retiree heath benefits accounting for another $70 billion in debt. That, combined with bonds, debts related to capital assets and other liabilities, brings the state’s total bills to $232.1 billion. After accounting for $23.2 billion in assets available to pay bills, the net long-term debt is $208.9 billion.
By contrast, Alaska boasts an $11 billion long-term surplus, or $38,200 per taxpayer. It is one of nine states with surpluses, and one of three to earn “A” grades with surpluses greater than $10,000 per taxpayer. Republicans have controlled the state Senate since 2013 and had a majority in the state House from 1995 until this year. Although independent Bill Walker is governor, Republicans held the seat from 2003 until his election in 2014.
Michael Johns, executive director of Tea Party Community, said he does not think it is a coincidence that Democratic states are struggling with debt more than states with Republican governors and legislatures.
“There’s an undeniable correlation as you look around the country,” he said.
Johns said he thinks that is due to the tendency of Democratic officials to favor more generous retirement plans for public employees. He said he believes higher taxes and more onerous regulations also hurt the economy and suppress tax collections.
“It’s a combination of both,” he said.
Weinberg said her organization does not recommend specific courses of action for how the “sinkhole states” — as the report terms them — can wash away the red ink. But she said in general, the solution is to raise taxes or cut spending.
“It’s relatively simple,” she said. “You have a cash shortfall. And there are only two ways to fix that.”