By Patrick B. McGuigan
By Patrick B. McGuigan
A new analysis of per-taxpayer government debt burdens in the state of Washington finds taxpayers there face a slightly smaller burden than their peers in Oklahoma. The conclusion is gleaned from the latest release from the Institute for Truth in Accounting (IFTA), a Chicago-based organization CapitolBeatOK has regularly monitored.
IFTA circulated its analysis of Washington state’s debt challenges this morning (Monday, February 28). The study is based on the group’s customary intensive review of that state’s comprehensive annual financial report (CAFR). CAFRs are considered the most reliable analysis of each state’s true debt burden.
According to today’s release, the Institute “determined the State is in a precarious financial position because it does not have the funds available to pay $31.7 billion of the State’s commitments as they come due. Each taxpayer’s share of this financial burden equals $13,800.”
Oklahoma’s per-taxpayer burden, for comparison, was $14,600 per taxpayer at the time of the institute’s analysis of Oklahoma’s 2009 CAFR.
As is the case in Oklahoma and other states, a balanced budget is required in the state constitution. However, as Sheila Weinberg of the IFTA observed in today’s release concerning her critical analysis of Washington state government finances:
“If governors and legislatures had truly balanced the state’s budget, no taxpayer’s financial burden would exist. A state budget is not balanced if past costs, including those for employees’ retirement benefits, are pushed into the future.”
Washington has total assets of $73 billion, but the institute’s review of the 2010 data finds “more than $6.3 billion of off-balance sheet retirement liabilities. More than $42 billion of the State’s assets cannot be easily converted to cash to pay State bills of $62.7 billion as they come due. These assets consist of capital assets, including infrastructure, buildings and land, and assets the use of which is restricted by law or contract. The State does not have the funds needed to pay for $31.7 billion of state obligations.”
As has been the case in every state IFTA has analyzed thus far, “Many of the obligations relate to state employees’ pension and retirement healthcare benefits. Years of over-promising retirement benefits, while shortchanging funding, have resulted in the [Washington state]’s retirement systems being underfunded by $7.3 billion. As of June 30, 2010, the state had set aside only 74 cents to pay for each dollar of benefits promised. As of that date only $20.3 billion was deposited into the retirement systems, even though the actuaries calculated that a minimum of $27.6 billion should have already been contributed.”
Talley of the Associated Press detailed Oklahoma Treasurer Miller’s characterization of Oklahoma’s pensions systems as at “crisis level” when he reported on a meeting of the Oklahoma State Pension Commission last week.
Miller said, “Defined benefit as it has been practiced in Oklahoma is unsustainable." He also said. "It's a political problem and a resource problem. The solution is not going to be popular."
Commissioners discussed possible changes to state governments pensions, to shift them from defined benefits to defined contribution systems.
Talley reported that Auditor and Inspector Gary Jones, also a member of the pension commission, said at last week’s meeting, “It's been caused by a lack of responsibility. If you find yourself in a hole, quit digging."
Treasurer Miller has pointed to a recent study from Moody’s Investors Service detailing a more critical standard of analysis the service is adopting for examination of state debt. In a January 26, 2011 report, Moody’s said:
“Our credit analysis has long focused on states’ net tax-supported debt, while also looking separately at pension funded ratios1 to assess the relative risk implied in states’ long-term liabilities. As part of our ongoing efforts to provide increased transparency, and in view of prospects for sluggish economic growth and slow revenue recovery among U.S. states, this report provides figures that combine unfunded pension liabilities with outstanding bonds when evaluating the leverage position of state governments.”
This new approach from Moody’s could trigger a lowering of Oklahoma’s previously stellar bond rating.