Financial irony in Connecticut, the ‘Sinkhole State’
Today, Truth in Accounting (TIA), a think tank that has analyzed government financial reporting since 2002, released its annual “Financial State of the States” report. Included is the fact that Connecticut ranks 49th for financial health, second to last, and has the second highest taxpayer burden in the country at $49,000 per taxpayer. Taxpayer burden is the amount each Connecticut taxpayer would have to pay the state’s treasury in order for the state to be debt-free.
Connecticut’s ranking qualifies it as a “Sinkhole State,” sandwiching it at the bottom of the rankings between New Jersey, $59,400 per taxpayer, and Illinois, $45,500 per taxpayer. New Jersey and Illinois are two states residents of Connecticut should not want to be associated with when it comes to state finances. The only place worse than these three in recent memory is Puerto Rico, a U.S. territory, with a taxpayer burden of $65,100 and the recipient of a bailout earlier this year compliments of the U.S. Government.
Connecticut has a balanced budget requirement, but state officials use accounting tricks that help disguise the real condition of the state’s finances. Government officials mask the truth by counting borrowed money as income, delaying the payment of current bills until the start of the next fiscal year, and inflating revenue assumptions. The biggest trick of all though is excluding a large portion of government employee compensation off the balance sheet, not the budget.
TIA researchers use a systematic and thorough approach to determine taxpayer burden. TIA’s data, in an effort to be 100 percent transparent and accurate, includes all promised but unfunded benefits, including retiree health care and pensions. Not including both promised and current earned benefits in the state’s budget is simply misleading. Would you exclude your credit card payments from your budget? Why are government officials not held to the same level of responsibility as their constituents?
When honestly evaluated, Connecticut is hiding $1.8 billion of pension debt and $13 billion of retiree health care debt. The State of Connecticut needs $62.4 billion to completely pay its bills, divided equally among taxpayers, is the $49,000 taxpayer burden number.
In 2015, the governor and legislature claimed they balanced the budget but did not fund the future retiree health care benefits promised to state employees. Connecticut is experiencing massive tax raises – nearly $700 million in 2015 – to offset their budget crisis. Despite having an extremely high per capita income, Connecticut’s finances are a mess.
Ironically, the Financial Accounting Standards Board (FASB), Governmental Accounting Standards Board (GASB) and Financial Accounting Foundation (FAF) are all located in Norwalk. According to their websites, the “collective mission of the GASB, the FASB and the FAF is to establish and improve financial accounting and reporting standards to provide useful information to investors and other users of financial reports and educate stakeholders on how to most effectively understand and implement those standards.”
How can Connecticut be the home to so many national organizations dedicated to financial standards, but is also the home to a state government leading the way in masking the true status of their financial situation? In a state where financial organizations are paving the way for the country, Connecticut should be in a much better financial position and a beacon of light for how things should be done. Unfortunately, they are not.
From coast to coast, across all 50 states, TIA researchers calculated over $1.3 trillion in unaccounted for debt. This number is real and will eventually fall on the back of taxpayers whether through additional taxes, continued education cuts, or fewer government programs.
The time to act in Connecticut is now: residents must stand up and demand more truthful and transparent accounting from their officials or pay the price later.
Founded in 2002, Truth in Accounting is dedicated to educating and empowering citizens with understandable, reliable, and transparent government financial information. Sheila Weinberg is a Certified Public Accountant with more than 30 years of experience in the field.
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