Over two-thirds of U.S. states—31—do not have enough cash to pay their bills. Truth in Accounting (TIA), a neutral organization that keeps an eye on accounting, released its “Financial State of the States” report on Tuesday, detailing the poor financial situation of many states for the thirteenth year in a row.
To balance the budget, which is required by law in 49 states, “elected officials have not included the true costs of the government in their budget calculations and have pushed costs onto future taxpayers,” TIA says.
TIA comes up with the Taxpayer Burden by dividing the amount of money needed to pay bills by the number of people who pay taxes in the state. TIA’s research is based on the most up-to-date information from state finances. Fiscal year (FY) 2021 for most states was from June 1, 2020, to June 30, 2021.
From FY 2020 to the end of FY 2021, all 50 states owed a total of $1.2 trillion, which is a 26% rise. This is scary news, especially since inflation is going up and some economic signs show that we may already be in or close to a recession. The cost of getting money will go up for the states with the most debt, making it even harder for them to solve their money problems. When unemployment starts to go up, it will make it harder for states to pay their bills.
In 2018, forty states couldn’t pay their bills, so the fact that thirty-one states can’t now is an increase. By 2021, that number had gone up to thirty-nine states. What caused what seems like an improvement in the state’s finances? I asked TIA CEO Sheila Weinberg, and she said, “temporary record gains in the stock market during that time and the Covid-relief money.” Governors say their states have surpluses, but their financial records and retirement plan numbers show that the states are really deeply in debt. The governors are only thinking about the next few months, but taxpayers need to be thinking about the long run.
As in previous years, the biggest reason why states were in debt was their unfunded retirement bills. Weinberg said, “One way states make their budgets look balanced when they’re not is by taking money out of public pension and OPEB funds.” This has caused pension funds and other post-employment benefits (OPEB) funds to fall short by $699 billion and $665 billion, respectively.
Workers like teachers, firefighters, and cops have been promised these retirement benefits by elected officials, but most state governments have not set aside enough money to pay them. There are $699 billion in unfunded pension liabilities across all fifty states. This means that states have only saved 72 cents for every dollar of promised pension payments.
The states in the best shape are the same as they were in 2021: Alaska is still the best shape. A “Sunshine State” is what TIA calls a state that is in good shape. Alaska had $41.5 billion on hand to pay off $15.4 billion in debt. Alaska’s long-term debt went down mostly because of less unearned income and the Coronavirus Relief Funds being recognized.
Unfortunately, New Jersey has the worst finances of all fifty states. They are even worse than they were last year, when they were ranked 29th. Not surprisingly, New Jersey has been in the Bottom 5 Sinkhole States list for thirteen years in a row. It was the only state whose finances got worse.It now takes more than $12.5 billion to pay all the bills. As with all states, New Jersey’s pension plan assets saw big short-term gains in value. However, the state’s Net Pension Liability went up because it took on more pension responsibility from local governments, according to the TIA study.
While things were looking up, New Jersey did get some good news in September when Moody’s Ratings changed its view for the state from stable to positive. “Healthy fund balances and strong tax collections have allowed full pension payments and the retirement of some debt,” Moody’s said. With better reserves, the state will be better able to handle economic and income trends that might not be as good in the coming year. Moody’s ranking, on the other hand, shows that New Jersey has much higher long-term debt and fixed costs than most states.
Standard and Poor’s also had good news for Connecticut. They changed their view on the state from stable to positive. S&P said that Connecticut is building up its budget reserves during times of strong economic and income growth, which could protect its finances from a downturn. Taxpayers and people who look at credit scores will definitely be watching this closely over the next few months.