Report: Majority of state finances deteriorated in 2020 as taxpayer burdens continue to rise
A new report released by Chicago-based Truth in Accounting found that the majority of the state’s finances had deteriorated in 2020, with the burden on taxpayers skyrocketing.
The twelfth annual report on the state financial condition ranks the 50 states according to their financial health based on the latest available data from the states’ full audited annual financial reports for fiscal year 2020.
“Despite federal help received from the CARES Act and other subsidies related to COVID-19, the majority of state finances have deteriorated,” the report revealed. “The total debt of the 50 states stood at $ 1.5 trillion at the end of fiscal 2020.”
Of the 50 states, 39 did not have enough money to pay their bills when the coronavirus-related state shutdowns began. Although all states received federal assistance from the CARES Act and other COVID-19-related grants, the majority of their finances deteriorated in fiscal year 2020.
TIA calculated how much each taxpayer would have to pay to repay their respective state’s debt, which would result in a tax burden. The average tax burden across the 50 states was $ 9,300 for fiscal 2020, about $ 2,000 lower than in 2019. TIA also calculated a tax surplus for states that not only had money on hand. to pay their bills, but who also had extra money.
The majority of the state’s debt comes from pension plans such as pensions and retiree health care benefits. On average, the 50 states set aside only 64 cents on the dollar to fund retirement promises and 8 cents on the dollar to fund retiree health care promises. The market downturn in early 2020 meant that many public pension plans earned much less than needed to cover growing liabilities. When states cannot close investment gaps, the costs fall on taxpayers, notes the TIA.
“The majority of states were not financially prepared for a crisis,” Sheila Weinberg, founder and CEO of Truth in Accounting, said in a statement. “When states can’t pay their bills, taxpayers are at the mercy.”
In 2020, government pension debt stood at $ 926.3 billion, and other post-employment benefits (OPEB), primarily retiree health care, totaled $ 638.7 billion. dollars, according to the report.
The 10 worst-performing states with the highest tax burdens are Connecticut ($ 62,500), New Jersey ($ 58,300), Illinois ($ 57,000), Massachusetts ($ 38,100), Hawaii ($ 37,000), Delaware ($ 31,300), Kentucky ($ 26,000), Vermont ($ 24,700), California ($ 21,100) and New York ($ 20,100).
Every state except Vermont has a balanced budget requirement, the report notes. In order to balance the budget, elected officials must include the actual costs of their state government in budget calculations. But their financial reports, the TIA argues, indicate they did not, putting more costs on future taxpayers.
Instead, many states balanced their budgets by inflating income assumptions, counted borrowed money as income, underestimated true government costs, and delayed paying running bills until the start. of the following year so that they are not included in the budget calculations. , TIA found.
While 39 states did not have enough money to pay their bills, 11 states did. These states declared taxpayer surpluses: Alaska ($ 55,100 per taxpayer), North Dakota ($ 39,200), Wyoming ($ 19,500), Utah ($ 6,500), South Dakota ($ 5,200), Tennessee ($ 4,400), Nebraska ($ 3,800), Idaho ($ 3,000), Iowa ($ 2,000), Oregon ($ 1,000) and Minnesota ($ 200).
“These states deserve to be recognized for having truly balanced their budgets, but the uncertainty surrounding this current crisis makes it impossible to determine how much will be needed to maintain government services and benefits,” says TIA.
Despite a surplus, all 11 states also received federal aid.
TIA also rated the financial health of states according to a rating system. Three states received A’s, eight a B’s, 14 a C’s, 15 a D’s, and 10 states received failure scores.
“A” and “B” ratings were given to governments that met their balanced budget requirements and had a taxpayer surplus. A “C” grade, or passing grade, was awarded to states that approached their balanced budget requirements. “D” and “F” ratings were given to states whose civil servants have not balanced their budgets and have significant tax burdens.