CA’s finances now $213 billion in the red – NJ, IL worse

John Moorlach
State Senator representing the 37th Senate District

Drum roll, please. It is time for my Second Annual Update on State Comprehensive Annual Financial Reports (CAFRs). The main data are in the first two charts below.

The big takeaways: 

  1. California is still in the bottom 10 of the 50 states. Nevertheless, the Golden State moved up one position to 41st place from 42nd in its Unrestricted Net Position (UNP), the most accurate number for judging a state’s fiscal solvency. You can find the UNP in the Basic Financial Statements around page 30 in each CAFR, in the Statement of Net Position. In this piece I will be reporting mostly on Unrestricted Net Deficits (UNDs).

For that move, California can thank Delaware (which dropped four positions) and Vermont (which dropped three positions). Conversely, Rhode Island moved up three rankings to 40th place, just better than California. 

Subsequently, our state is moving up while standing still because its UND got worse by $1,106 per resident. We went from a per capital deficit of $4,287 to $5,393. That’s more than a 25 percent increase!

In contrast, more than half the states have an overall per capita lower than the one-year increase California just incurred.

The Golden State’s total UND is even more dramatic, rising $44 billion, from $169.5 billion to $213.3 billion.

  1. Considering UNP rankings, New Jersey and Illinois bumped California out of the worst position even though they contain smaller populations. Illinois’ -$217.4 billion and New Jersey’s -$214.1 billion edged out California’s -$213.3 billion. The populations of those states are 12.7 million for Illinois and 8.9 million for New Jersey – about a quarter of California’s almost 40 million.
  1. The increase to the overall combined net deficit of all 50 states is $336 billion! That’s a dramatic increase of 38 percent, thanks mostly to adding the Other Post-Employment Benefits (OPEBs) to the balance sheets. OPEBs include such benefits as deferred compensation and, by far the largest, retiree medical care.
  1. The state of North Carolina’s total liabilities rose by more than $6 billion, moving the state down 24 positions.
  1. Such preeminent “no personal income tax” states as Texas, Florida and Nevada made significant drops in the rankings, by 17, six and five positions, respectively. Does that portend future impositions of an income tax?
  1. The state of Montana continued its rise, up 10 positions.
  1. The top 12 states remained in that top percentile.   
  1. Combining the four states with the largest UNDs ­– New Jersey, Illinois, California and Texas – totals $749.4 billion. That’s 62 percent of the sum of the UNPs for all 50 states. Yet their combined populations comprise just 27 percent of America’s 330 million people.

This shows up more clearly in a bonus third chart.  It shows the Unrestricted Net Positions, in order from largest to smallest, for June 30, 2018 and June 30, 2017.  Here are some observations on the changes between those dates: 

The fiscal year ended June 30, 2018 is much different from the previous fiscal year. For the first time, the Government Accounting Standards Board (GASB) required that Other Post-Employment Benefits (OPEBs), such as unfunded retiree medical, be reported in the liability section of the balance sheets.

Consequently, I decided to wait until all of the CAFRs were issued. However, the state of Illinois still has not released its CAFR for the year ended June 30, 2018. I’m tired of waiting.

It’s nearly September, some 14 months after the end of the 2017-18 fiscal year. So I will project what the CAFR for Illinois may look like. The results are so astonishing, it may be the reason the Land of Lincoln is holding back its release.

In order to estimate the UNP, I started with the state’s June 30, 2017 Unrestricted Net Deficit. Then I added the published amount for this state’s unfunded retiree medical, $72.6 billion, and reduced it by the $16.5 billion of OPEBs reported on last year’s CAFR. This is how I came to the estimated Unrestricted Net Deficit of $217.3 billion. Admittedly, this may be a conservative estimate.

The long-term neglect by GASB of not requiring the reporting of unfunded promises has caused this disclosure to have a massive impact on the balance sheets of many municipalities. This year’s audited financial statements prove it.

Future generations will face heavy financial burdens, and it behooves current local elected leaders and state legislators to begin the difficult task of addressing these liabilities as quickly as possible. Because the next recession will be even more difficult on state budgets than downturns in previous years.

Chart 1: June 30, 2017 Rankings 

Rank State Population UNP Per Capita
1 Alaska        739,795  $14,558,125,000  $19,679 
2 North Dakota        755,393  $5,989,501,438  $7,929 
3 Wyoming        579,315  $4,518,975,575  $7,801 
4 Idaho     1,716,943  $1,146,468,000  $668 
5 Tennessee     6,715,984  $2,736,079,000  $407 
6 Oklahoma     3,930,864  $1,484,206,000  $378 
7 South Dakota        869,666  $267,296,000  $307 
8 Nebraska     1,920,076  $550,525,000  $287 
9 Utah     3,101,833  $819,880,000  $264 
10 North Carolina   10,273,419  $1,822,821,000  $177 
11 Iowa     3,145,711  ($999,603,000) ($318)
12 Washington     7,405,743  ($3,376,575,000) ($456)
13 Georgia   10,429,379  ($5,210,957,000) ($500)
14 Nevada     2,998,039  ($1,580,030,000) ($527)
15 Florida   20,984,400  ($12,401,193,000) ($591)
16 Oregon     4,142,776  ($2,482,259,000) ($599)
17 Virginia     8,470,020  ($5,344,284,000) ($631)
18 South Carolina     5,024,369  ($3,497,642,000) ($696)
19 Arkansas     3,004,279  ($2,160,882,000) ($719)
20 Arizona     7,016,270  ($5,341,848,000) ($761)
21 Indiana     6,666,818  ($5,319,406,000) ($798)
22 Texas   28,304,596  ($25,170,339,000) ($889)
23 Minnesota     5,576,606  ($5,029,153,000) ($902)
24 Ohio   11,658,609  ($10,571,925,000) ($907)
25 Montana     1,050,493  ($971,795,000) ($925)
26 Missouri     6,113,532  ($5,787,207,000) ($947)
27 Michigan     9,962,311  ($9,848,197,000) ($989)
28 Kansas     2,913,123  ($3,205,914,000) ($1,101)
29 New Hampshire     1,342,795  ($1,683,141,000) ($1,253)
30 Maine     1,335,907  ($1,885,023,000) ($1,411)
31 Wisconsin     5,795,483  ($8,361,432,000) ($1,443)
32 Colorado     5,607,154  ($8,359,538,000) ($1,491)
33 New Mexico     2,088,070  ($3,311,311,000) ($1,586)
34 Pennsylvania   12,805,537  ($21,275,848,000) ($1,661)
35 Alabama     4,874,747  ($8,608,527,000) ($1,766)
36 Mississippi     2,984,100  ($6,058,425,000) ($2,030)
37 New York   19,849,399  ($45,599,000,000) ($2,297)
38 West Virginia     1,815,857  ($4,455,964,000) ($2,454)
39 Louisiana     4,684,333  ($11,949,852,000) ($2,551)
40 Vermont        623,657  ($2,263,168,022) ($3,629)
41 Delaware        961,939  ($3,622,572,000) ($3,766)
42 California   39,536,653  ($169,499,683,000) ($4,287)
43 Rhode Island     1,059,639  ($4,581,514,000) ($4,324)
44 Maryland     6,052,177  ($27,010,946,000) ($4,463)
45 Hawaii     1,427,538  ($7,996,567,000) ($5,602)
46 Kentucky     4,454,189  ($40,157,358,000) ($9,016)
47 Massachusetts     6,859,819  ($63,992,915,000) ($9,329)
48 Illinois   12,802,023  ($161,239,415,000) ($12,595)
49 Connecticut     3,588,184  ($52,826,131,000) ($14,722)
50 New Jersey     9,005,644  ($148,863,714,435) ($16,530)

 

Chart 2: June 30, 2018 Rankings – Illinois Projected
Rank State Population 2018 UNP Per Cap Change
1 Alaska           737,438  $17,387,310,000  $23,578  0
2 North Dakota           760,077  $7,172,275,944  $9,436  0
3 Wyoming           577,737  $4,237,698,833  $7,335  0
4 Idaho       1,754,208  $1,256,840,000  $716  0
5 Oklahoma       3,943,079  $1,853,248,000  $470  1
6 Tennessee       6,770,010  $2,704,085,000  $399  -1
7 Utah       3,161,105  $1,249,827,000  $395  2
8 South Dakota           882,235  $283,343,000  $321  -1
9 Nebraska       1,929,268  $503,722,000  $261  -1
10 Iowa       3,156,145  ($1,013,268,000) ($321) 1
11 Washington       7,535,591  ($4,163,206,000) ($552) 1
12 North Carolina     10,383,620  ($5,884,784,000) ($567) -2
13 Oregon       4,190,713  ($2,466,140,000) ($588) 3
14 Virginia       8,517,685  ($5,115,028,000) ($601) 3
15 Montana       1,062,305  ($642,952,000) ($605) 10
16 South Carolina       5,084,127  ($3,578,770,000) ($704) 2
17 Indiana       6,691,878  ($5,062,064,000) ($756) 4
18 Arizona       7,171,646  ($5,522,793,000) ($770) 2
19 Nevada       3,034,392  ($2,448,744,000) ($807) -5
20 Georgia     10,519,475  ($8,506,350,000) ($809) -7
21 Florida     21,299,325  ($17,686,725,000) ($830) -6
22 Kansas       2,911,505  ($2,617,412,000) ($899) 6
23 Minnesota       5,611,179  ($5,629,152,000) ($1,003) 0
24 Arkansas       3,013,825  ($3,115,348,000) ($1,034) -5
25 Ohio     11,689,442  ($12,787,140,000) ($1,094) -1
26 Colorado       5,695,564  ($7,251,155,000) ($1,273) 6
27 Missouri       6,126,452  ($7,922,530,000) ($1,293) -1
28 Wisconsin       5,813,568  ($8,542,138,000) ($1,469) 3
29 Michigan       9,995,915  ($14,946,883,000) ($1,495) -2
30 Mississippi       2,986,530  ($5,845,872,000) ($1,957) 6
31 Alabama       4,887,871  ($9,597,426,000) ($1,964) 4
32 New Mexico       2,095,428  ($4,690,920,000) ($2,239) 1
33 West Virginia       1,805,832  ($4,119,293,000) ($2,281) 5
34 New York     19,542,209  ($45,231,000,000) ($2,315) 3
35 New Hampshire       1,356,458  ($3,221,260,000) ($2,375) -6
36 Maine       1,338,404  ($3,491,939,000) ($2,609) -6
37 Pennsylvania     12,807,060  ($42,892,246,000) ($3,349) -3
38 Louisiana       4,659,978  ($16,052,435,000) ($3,445) 1
39 Texas     28,701,845  ($104,638,813,000) ($3,646) -17
40 Rhode Island       1,057,315  ($4,702,373,000) ($4,447) 3
41 California     39,557,045  ($213,316,033,000) ($5,393) 1
42 Maryland       6,042,718  ($34,404,356,000) ($5,694) 2
43 Vermont           626,299  ($3,831,618,339) ($6,118) -3
44 Hawaii       1,420,491  ($11,381,725,000) ($8,013) 1
45 Delaware           967,171  ($8,475,290,000) ($8,763) -4
46 Kentucky       4,468,402  ($42,257,250,000) ($9,457) 0
47 Massachusetts       6,902,149  ($74,254,002,000) ($10,758) 0
48 Illinois     12,741,080  ($217,354,522,000) ($17,059) 0
49 Connecticut       3,572,665  ($61,949,017,000) ($17,340) 0
50 New Jersey       8,908,520  ($214,093,149,142) ($24,032) 0

 


Chart 3: Unrestricted Net Positions – June 30, 2018 vs 2017

 

Rank State 2018 UNP State 2017 UNP Change
1 Alaska $17,387,310,000  Alaska $14,558,125,000  0
2 North Dakota $7,172,275,944  North Dakota $5,989,501,438  0
3 Wyoming $4,237,698,833  Wyoming $4,518,975,575  0
4 Tennessee $2,704,085,000  Tennessee $2,736,079,000  0
5 Oklahoma $1,853,248,000  North Carolina $1,822,821,000  -24
6 Idaho $1,256,840,000  Oklahoma $1,484,206,000  1
7 Utah $1,249,827,000  Idaho $1,146,468,000  1
8 Nebraska $503,722,000  Utah $819,880,000  1
9 South Dakota $283,343,000  Nebraska $550,525,000  1
10 Montana ($642,952,000) South Dakota $267,296,000  1
11 Iowa ($1,013,268,000) Montana ($971,795,000) 1
12 Nevada ($2,448,744,000) Iowa ($999,603,000) 1
13 Oregon ($2,466,140,000) Nevada ($1,580,030,000) 1
14 Kansas ($2,617,412,000) New Hampshire ($1,683,141,000) -2
15 Arkansas ($3,115,348,000) Maine ($1,885,023,000) -2
16 New Hampshire ($3,221,260,000) Arkansas ($2,160,882,000) 1
17 Maine ($3,491,939,000) Vermont ($2,263,168,022) -2
18 South Carolina ($3,578,770,000) Oregon ($2,482,259,000) 5
19 Vermont ($3,831,618,339) Kansas ($3,205,914,000) 5
20 West Virginia ($4,119,293,000) New Mexico ($3,311,311,000) -2
21 Washington ($4,163,206,000) Washington ($3,376,575,000) 0
22 New Mexico ($4,690,920,000) South Carolina ($3,497,642,000) 4
23 Rhode Island ($4,702,373,000) Delaware ($3,622,572,000) -9
24 Indiana ($5,062,064,000) West Virginia ($4,455,964,000) 4
25 Virginia ($5,115,028,000) Rhode Island ($4,581,514,000) 2
26 Arizona ($5,522,793,000) Minnesota ($5,029,153,000) -1
27 Minnesota ($5,629,152,000) Georgia ($5,210,957,000) -6
28 Mississippi ($5,845,872,000) Indiana ($5,319,406,000) 4
29 North Carolina ($5,884,784,000) Arizona ($5,341,848,000) 3
30 Colorado ($7,251,155,000) Virginia ($5,344,284,000) 5
31 Missouri ($7,922,530,000) Missouri ($5,787,207,000) 0
32 Delaware ($8,475,290,000) Mississippi ($6,058,425,000) 4
33 Georgia ($8,506,350,000) Hawaii ($7,996,567,000) -3
34 Wisconsin ($8,542,138,000) Colorado ($8,359,538,000) 4
35 Alabama ($9,597,426,000) Wisconsin ($8,361,432,000) 1
36 Hawaii ($11,381,725,000) Alabama ($8,608,527,000) 1
37 Ohio ($12,787,140,000) Michigan ($9,848,197,000) -1
38 Michigan ($14,946,883,000) Ohio ($10,571,925,000) 1
39 Louisiana ($16,052,435,000) Louisiana ($11,949,852,000) 0
40 Florida ($17,686,725,000) Florida ($12,401,193,000) 0
41 Maryland ($34,404,356,000) Pennsylvania ($21,275,848,000) -2
42 Kentucky ($42,257,250,000) Texas ($25,170,339,000) -5
43 Pennsylvania ($42,892,246,000) Maryland ($27,010,946,000) 2
44 New York ($45,231,000,000) Kentucky ($40,157,358,000) 2
45 Connecticut ($61,949,017,000) New York ($45,599,000,000) 1
46 Massachusetts ($74,254,002,000) Connecticut ($52,826,131,000) 1
47 Texas ($104,638,813,000) Massachusetts ($63,992,915,000) 1
48 California ($213,316,033,000) New Jersey ($148,863,714,435) -1
49 New Jersey ($214,093,149,142) Illinois ($161,239,415,000) -1
50 Illinois ($217,354,522,000) California ($169,499,683,000) 2
  Totals ($1,214,054,771,704) ($878,007,376,444)  

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