Over 30 states in the United States face insufficient funds to meet their financial obligations

 A concerning finding from the latest 'Financial State of the States' report by nonpartisan accounting watchdog Truth in Accounting (TIA) reveals that a staggering 31 states in the United States, representing over two-thirds of the country, face a significant shortage of funds to meet their financial obligations. This marks the thirteenth consecutive year in which states have struggled to achieve fiscal stability, as elected officials consistently fail to incorporate the true costs of government in their budget calculations, effectively burdening future generations with mounting debt. TIA's methodology calculates the Taxpayer Burden by dividing the total amount required to settle outstanding bills by the number of state taxpayers, highlighting the grave financial challenges faced by these states. The report draws on the most recent available data from state financials, with the fiscal year 2021 data spanning from June 1, 2020, to June 30, 2021, providing a comprehensive assessment of the states' fiscal health.

As the fiscal year 2021 came to a close, alarming statistics emerged, revealing that the collective debt burden of all states in the United States had surged to a staggering $1.2 trillion, representing a significant 26% increase compared to the previous fiscal year. This news arrives at a time of growing concern, particularly as we navigate a period of rising inflationary pressures and indications pointing toward an impending recession. The implications of this escalating debt are particularly worrisome for states already grappling with high levels of indebtedness, as the cost of borrowing will inevitably rise, further exacerbating their existing fiscal challenges. Moreover, the looming threat of increasing unemployment rates adds another layer of complexity to the states' financial woes, compounding the difficulties they face in effectively managing their fiscal responsibilities. This confluence of factors underscores the urgent need for proactive measures and responsible fiscal policies to address the mounting economic strains and ensure the long-term financial stability of these states.

The current situation, where thirty-one states find themselves unable to meet their financial obligations, can be seen as a slight improvement compared to previous years. In 2018, a staggering forty states faced the same challenge, and by 2021, the number had reduced to thirty-nine. When questioning Sheila Weinberg, the CEO of Truth in Accounting (TIA), about this apparent improvement in state finances, she attributed it to two main factors: temporary record gains in the stock market and the influx of Covid-relief funds. While governors may tout surpluses and optimistic outlooks, the reality painted by financial reports and retirement plan figures reveals a different story—indicating that these states are actually burdened with significant levels of debt. This discrepancy highlights a short-term perspective on the part of the governors, who may prioritize immediate gains and political optics, while taxpayers should be genuinely concerned about the long-term implications and potential consequences of these financial challenges. It is crucial to consider the future implications and adopt measures that promote sustainable fiscal practices, rather than solely focusing on short-term gains and misleading surpluses.

The persistent issue of unfunded retirement liabilities continues to be the primary driver of states' financial challenges. Sheila Weinberg, CEO of Truth in Accounting (TIA), highlights that states often employ a deceptive tactic to create the illusion of balanced budgets by neglecting to adequately fund public pension and OPEB (other post-employment benefits) funds.

Although elected officials have made promises to provide these retirement benefits to various public sector employees, such as teachers, firefighters, and police officers, most state governments have failed to allocate sufficient funds to fulfill these obligations.
This significant disparity between promised benefits and the allocated funds highlights the precarious financial position of states and the looming challenges they face in meeting their long-term retirement obligations. It underscores the need for comprehensive reforms and responsible financial management to ensure the sustainability of pension systems and protect the interests of both employees and taxpayers.

Among the states, the ones exhibiting favorable financial conditions remain consistent with the previous year, with Alaska leading the pack. Truth in Accounting (TIA) designates such states as "Sunshine States" to reflect their positive standing. Alaska, in particular, stands out with $41.5 billion in available funds, surpassing its $15.4 billion worth of obligations. The state's long-term debt has experienced a decline primarily attributed to reductions in unearned revenue and the recognition of Coronavirus Relief Funds.

This improvement in Alaska's financial outlook underscores the impact of responsible fiscal management and strategic allocation of resources. By effectively managing their financial obligations and leveraging available relief funds, the state has made notable progress in addressing its long-term debt. However, it is crucial to maintain a vigilant approach to ensure continued financial stability and sustainable growth.

Regrettably, New Jersey finds itself in the most precarious fiscal position among all fifty states, as confirmed by its ranking as the worst-performing state in terms of financial condition. This deterioration in New Jersey's standing is concerning, especially considering its drop from the 29th position in the previous year's rankings. Alarming enough, this marks the thirteenth consecutive year that New Jersey has been categorized among the Bottom 5 Sinkhole States, making it the sole state to experience a decline in its financial condition.

According to the findings of the Truth in Accounting (TIA) report, New Jersey's financial woes are exacerbated by a staggering increase of over $12.5 billion in the funds required to meet its outstanding obligations. While the state's pension plan assets witnessed notable short-term growth, New Jersey's share of the Net Pension Liability rose due to assuming additional pension responsibilities from local governments.

The persistently dire fiscal situation in New Jersey underscores the urgent need for comprehensive measures to address the state's mounting financial challenges. It is imperative for policymakers and stakeholders to prioritize effective financial management, explore sustainable solutions, and alleviate the burden placed on taxpayers. Swift and decisive actions are necessary to steer New Jersey toward a path of fiscal stability and safeguard its long-term economic prospects.

In September, New Jersey received positive news from Moody's Ratings as the credit agency revised its outlook for the state from stable to positive. Moody's acknowledged New Jersey's healthy fund balances, strong tax collections, and their ability to meet full pension payments and retire some debt. The improved reserves position the state to better withstand potential economic and revenue challenges in the future. However, Moody's rating also highlights the long-term liabilities and fixed cost burdens that remain significantly higher in New Jersey compared to most states.

Similarly, Connecticut received favorable news from Standard and Poor's (S&P), which revised its outlook for the state from stable to positive. S&P noted that Connecticut is replenishing budget reserves during periods of economic and revenue growth, which could help protect its finances in the event of a recession. The progress made in restoring reserves will be closely monitored by taxpayers and ratings analysts in the coming months.

While these positive developments reflect improved financial conditions and management in both states, it is important to acknowledge the long-term challenges they still face. Addressing high liabilities and fixed costs will remain crucial in ensuring sustained fiscal stability and future economic growth.