Study takes alternative approach to examining relative balance, and unbalance, of state budgets

Stateline Midwest ~ November 2012

All 11 Midwestern states have laws on the books to keep their budgets balanced from year to year. But very few of them are living up to the intent of these constitutional or statutory requirements, says Sheila A. Weinberg, founder and CEO of the Institute for Truth in Accounting, which earlier this year published its second edition of “The Financial State of the States.”

“As it stands now, most states only include the checks that they write for the current period [budget year or biennium] as expenses,” she says. “So there are a lot of costs that are being pushed into the future; 90 percent of the retirement liabilities of states is maintained off their balance sheets.”

The result of this outdated “checkbook accounting,” she says, is a hidden financial hole that has built up in most states and that current and future taxpayers will have to fill.

Using 2010 financial figures, the institute’s report examines the depth of this hole in each state, and then measures the per-taxpayer burden for paying the state’s unfunded liabilities. In the Midwest, the burdens ranged from $31,600 per taxpayer in Illinois (third-highest in the nation) to $500 in Iowa.

Three of the six U.S. states showing a taxpayer surplus were in the Midwest: North Dakota, Nebraska and South Dakota. Strong state economies help, but Weinberg says another factor is the budgeting discipline adhered to by the governors and legislatures in these surplus states.

“When they promise employees benefits, they put money aside to fund those benefits,” she says. “They include it in the current budget and then write a check to the pension plan, so they actually fund the benefits as they go along.”