If the state’s unfunded pension liability was included in its “true” financial statement, Florida would have $60.9 billion available to pay $73 billion in bills – a $12.1 billion shortfall that has increased by about $500 million since last year, according to an analysis published Tuesday by a government fiscal transparency watchdog.
Florida lawmakers used an accounting tweak in the state’ fiscal year 2019 budget to defer payments on $22 billion in pension debt, a maneuver that hides the “true cost of government” from voters and “passes this expense on to future taxpayers,” Truth in Accounting (TIA) maintains in its 2019 Financial State of the States report.
Each Florida taxpayer's share of that debt is $1,800, calculates TIA, a Chicago-based nonprofit dedicated to government fiscal transparency that analyzed and graded all 50 state governments’ fiscal health based on their latest Comprehensive Annual Financial Report (CAFRs) filings.
Florida is one of 13 states to receive a “C” grade for its financial condition, the same score it received in TIA’s 2018 report.
“The C grade is a warning sign to lawmakers that public finances are trending in the wrong direction,” TIA Founder/CEO Sheila Weinberg said. “Most voters would be alarmed to learn how much money their state needs in order to cover promised expenses.”
TIA’s taxpayer burden is a calculation of the state’s bills divided by the number of taxpayers. The average taxpayer burden across all 50 states is $8,450, ranging from $200 in Minnesota to $65,100 in New Jersey.
“Many state governments struggle to close budget gaps resulting from benefit programs that have been promised to public employees but not fully paid for,” TIA states. “These unfunded retirement and healthcare obligations represent real expenses that fall on taxpayers. Still, politicians often find it expedient in the short term to kick the can down the road to future generations thereby forfeiting their fiduciary responsibilities.”
Unfunded retirement liabilities are the main contributing factor to the $1.5 trillion in state-level debt, according to the report.
“One of the ways states make their budgets look balanced is by shortchanging public pension and other post-employment benefits (OPEB) that a state or local government employee receives as part of his or her package of retirement benefits. This practice has resulted in a $824 billion shortfall in pension funds and a $664.6 billion shortfall in OPEB funds,” TIA states.
At the end of fiscal 2018, 40 states did not have enough money to pay all its bills. “This means,” the report stipulates, “that to balance the budget – as is supposedly required by law in 49 states – elected officials have not included the true costs of the government in their budget calculations and have pushed costs onto future taxpayers.”
The 136-page report breaks down Florida’s unfunded pension liability on pages 58-59 and also on TIA’s state data lab page.
“Florida’s financial problems stem mostly from unfunded retirement obligations that have accumulated over the years,” the report states.
Of the $65.1 billion in retirement benefits promised to nearly 400,000 former public workers enrolled in the Florida Retirement System (FRS), the state has not funded $11 billion in pension and $11 billion in retiree health care benefits.”
In addition, TIA maintains, Florida’s reported net position is inflated by $3.1 billion, “largely because the state defers recognizing losses incurred when the net pension liability increases.”
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.
Government doesn’t play by the same rules it requires of private businesses, the report explains.
“When a corporation promises an employee retirement benefits, it is legally required to set the money aside as the bills accumulate to ensure 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.”
In Florida, state law requires actuaries calculate the annual required contribution (ARC) that state and local governments must make to fund benefits projected to be accrued during a budget year.
“Based on an actuarial liability of $186 billion and an actuarial value of assets of $156.1 billion, the program is 83.9 percent funded as of June 30, 2018,” according to FRS.
TIA notes Florida and other states have become more transparent with the adoption of Generally Accepted Accounting Principles (GAAP) set by the Governmental Accounting Standards Board (GASB), which now require governments to disclose pension (GASB 68) and other post-employment (GASB 75) benefits on balance sheets.
“While transparency within government accounting is improving, there is still much work to be done,” the report states. “TIA believes it is imperative to provide an honest accounting of each state’s financial condition.”