Earlier this week, fifteen Republican presidential candidates took the stage at the Ronald Reagan Presidential Library in Simi Valley, California, and leading up to the debate, several candidates even likened themselves to Ronald Reagan. But what would he say if he knew 49 of the 50 states are hiding their retirement debt, including California?
California’s financials reveal the state government has a massive amount of hidden debt – $111 billion worth. When compared with other states in the West and Pacific Northwest, California has the highest hidden debt.
When this $111 billion of hidden debt is included, California actually owes $328.3 billion in bills yet has only $93.8 billion available to pay those bills. In order for the state to be debt-free, each California taxpayer would have to pay a staggering $20,900 to the state’s Treasury – that’s almost a year of undergraduate, in-state tuition at UC Berkeley. With a Taxpayer Burden of $20,900, California has the second highest Taxpayer Burden in the Western region.
At Truth in Accounting, we are dedicated to educating and empowering citizens with understandable, reliable, and transparent government financial information. Annually, we release our Financial State of the States report, a comprehensive ranking of all 50 U.S. states by Taxpayer Burden – the amount each individual taxpayer would have to pay to make their state debt-free. This information is imperative for legislators and citizens to make informed decisions, whether on the floor of the state house in Sacramento or at the polls.
However, Taxpayer Burden is more than just a number. Higher Taxpayer Burdens are linked to lower quality of life, poor highway systems, and slow home price recoveries.
California is able to hide this debt because government officials use outdated accounting methods that only account for short-term obligations rather than long-term liabilities. Instead of setting aside funds for when employee benefits will be earned, California only contributes to this fund when benefits are actually paid.
Essentially, California is putting retirement benefits and pensions costs on a credit card. However, the state’s credit card has no limit – unlike the credit cards consumers have. To make matters worse, the state is not paying the equivalent to the monthly minimum fee nor setting aside future funds to pay these retirement benefits off.
In his first gubernatorial address, then-Governor-elect Reagan said, “Well, the truth is, there are simple answers – there just are not easy ones.” In the spirit of Reagan’s 1967 address, I would like to think that he would say the answer is simple: we must update government accounting methods.
I urge Governor Jerry Brown and his administration to update their accounting methods, and I encourage Californians to hold their government officials accountable for the financial health of their local, state, and federal governments. If governments truly balanced their budgets, there would be no Taxpayer Burden.
It was unfortunate that the candidates did not fully address state debt in this week’s debate, but we need to know the truth about their state’s fiscal health. Equally, if not more importantly, state employees deserve to receive the benefits they earned. If states continue to rack up debt on their credit cards, our children and grandchildren will be the ones left to foot the bill.
Sheila Weinberg is the Founder and CEO of Truth in Accounting, a government accounting think tank based in Chicago. Weinberg is a CPA with over 30 years of experience in the field.