In the past, Grassroot has reported on how the state’s unfunded liabilities have affected our economic outlook–and created a burden that every state taxpayer will eventually have to bear. A recent article from Danny Mahoney of Truth in Accounting, lays out exactly why Hawaii makes it into the top 5 “sinkhole states” … and the accounting tricks that have been used to mask the problem.
Five States’ Slumping Financial Conditions Reflect Widespread Pension Problems
Financial conditions in many states have shown improvement in the years since the recession began in 2008, but the economies of Connecticut, Hawaii, Illinois, Massachusetts, and New Jersey have continued to deteriorate.
These five states are being called “sinkholes” because they have the highest debt per taxpayer after available assets are tapped.
In 2013, each Massachusetts taxpayer was liable for $28,000 in debt per person. In New Jersey, each taxpayer was responsible for paying $36,000 in liabilities. Each Illinois taxpayer was on the hook for $43,400, and each Connecticut taxpayer was liable for $48,100. Hawaii taxpayers were responsible for paying $27,000 per person in unfunded debt, the lowest per capita amount among the five sinkhole states.
These five states are now in this dire financial situation because they did not make sufficient contributions to their state pension and retirement health care funds when they had the funds available to do so. This debt should be of grave concern to the citizens of these states.
One example of a state using an accounting gimmick to fool taxpayers can be found in Hawaii. At first glance, Hawaii seems to have burdened its taxpayers with less debt in 2013 than in 2012, but that is not what really happened.
“The decrease in Hawaii’s taxpayer burden is deceiving because most of the decrease is related to the state playing with the rate of return on the assets in its retirees’ health care plan,” Truth in Accounting Chief Executive Officer and founder Sheila Weinberg said. “The state increased the rate from 4 percent to 7 percent.”