Florida lawmakers are using an accounting tweak to defer payments on $20 billion in pension debt, a maneuver that not only hides the “true cost of government” from voters but “passes this expense on to future taxpayers,” Truth in Accounting (TIA) CEO and Founder Sheila Weinberg said.
Speaking with Watchdog.org in advance of Tuesday’s release of TIA’s annual ‘Financial State of the States’ report, Weinberg said if the state’s unfunded pension liability was included in its financial statement, Florida would have $58.6 billion available in assets to pay $70.1 billion worth of bills – an $11.6 billion shortfall.
Every Florida taxpayer, she said, has a $1,800 share – and counting – in this unfunded pension debt.
TIA, a Chicago-based nonprofit dedicated to government fiscal transparency, analyzed and graded all 50 state governments’ fiscal health based on their latest Comprehensive Annual Financial Report (CAFRs) filings.
Across all 50 states, TIA calculated more than $1.5 trillion of unfunded debt, “a huge financial burden for current and future taxpayers,” much of it related to public employee health care and retiree benefits.
Florida, once again, scored in the lowest dozen states, earning a ‘C’ in TIA’s report because, like many states, it defers paying down pension debts year after year while only budgeting the bare minimum annually to fund the plan.
Of the $60.8 billion in retirement benefits promised to nearly 400,000 former public workers enrolled in the Florida Retirement System (FRS), TIA maintains in its report that the state has not funded $10.9 billion in pension and $9.3 billion in retiree health care benefits.
“The state has put no money aside to pay for those promises. Future taxpayers will have to pay for them,” Weinberg said.
Because the state “doesn’t want to fess up” about its unfunded pension debt, she said Florida's reported net position is “inflated” by $4.3 billion.
“It’s showing $4.3 billion less in the red than if they had incurred that cost” of paying down the pension debt, Weinberg said.
Florida is not unique in this aspect, TIA maintains. Most states don’t include debt from retiree health care and pension obligations in their budgets. Therefore, TIA’s analysis shows, money “has not been set aside to adequately finance the programs” in many states.
Either retired state employees – teachers, police officers, public servants – “will have their promised benefits cut, or taxpayers are going to have to come up with the difference,” the report states, noting government doesn’t play by the same rules it imposes on private businesses.
“When a corporation promises an employee retirement benefits, it is legally required to set the money aside as the bills accumulate to ensure that the benefits can be fully redeemed,” TIA states in its report. “This common sense safeguard does not happen in most states; they promise benefits every day on paper without actually funding them.”
With more than 1 million beneficiaries, the FRS is the nation’s fourth-largest pension plan. Participating public employees have been required to contribute 3 percent of their annual salaries to the fund since 2011.
The plan – which covers 627,000 current employees and 395,000 retirees – carries $27.9 billion in debt but claims a funding level of 84 percent.
In Florida, state law requires actuaries to calculate the annual required contribution (ARC) that state and local governments must make to fund their pension plans.
The ARC is an appropriation to the pension trust to cover the benefits projected to be accrued during that coming budget year.
How much governments pay in ARC is determined by how much the FRS’s $160 billion pension fund generates in investment earnings.
“This is a pay-as-you-go system,” Weinberg said. “This is a widespread problem – and it is running up these obligations is like the government putting this debt on taxpayers’ credit cards.”
In 2017, the FRS Actuarial Assumption Conference reduced the annual rate of return from 7.6 percent to 7.5 percent.
It was the fourth year in a row that analysts lowered the forecasted rate of return on the fund with some consultants projecting a 30-year rate of return for the pension in the range of 6.6 percent to 6.8 percent.
The .1 decrease in projected 2017 fund revenues meant a $178 million increase in ARC payments, including $66.4 million for county governments, $54.4 million for school districts, $31 million for state agencies and nearly $16 million for state universities and colleges.
State lawmakers set aside the money for ARC and other fundamental obligations before determining the rest of the budget.
Interest and administrative costs related to the remainder of the FRS’s pension debt “is amortized as deferred outflows or deferred inflows,” as described in Florida’s Comprehensive Annual Financial Report, starting on page 123.
The key word, Weinberg said, is “deferred,” which means it remains unpaid and owed, but is removed from the annual budget ledger.
This accounting tweak enables lawmakers to “pass this expense on to future taxpayers,” Weinberg said, noting that not calculating debt payments into the budget creates “a false image of stable solvency.”
It is also disingenuous, she said.
“Citizens are told the budget is balanced. They are not being told the true cost of government,” she said. “Voters are being presented with major financial decisions without all the information.”