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The Leaflet: Tick Tock: The Government Debt Bomb Countdown Continues

May 17, 2019

New report reveals that major cities' finances are deeper in the red than previously thought. High spending and high taxes continue to drive businesses and residents out of these cities, and the debt time bomb ticks on.

A new report from Truth in Accounting, a government watchdog organization, reveals the 10 most populous U.S. cities are all ticking debt time bombs. The City Combined Taxpayer Burden (CCTB) report analyzes the combined debt (assets minus liabilities) of each city, county, state, and underlying government unit (such as school and park districts) for fiscal year 2017. It ranks cities based on their taxpayer burden, calculated by dividing the amount of total outstanding government debt by the number of taxpayers.

CCTB is a far more comprehensive and accurate assessment of cities’ finances than an earlier Truth in Accounting report. The previous report, Financial State of the Cities (FSOC), ranked the 75 most populous U.S. cities based solely on their taxpayer burdens. FSOC painted an incomplete and thus rosier picture because it only took into account outstanding municipality debt. Unlike the CCTB, FSOC did not include underlying government unit debt.

For example, in FSOC, Chicago (-$36,000 per taxpayer) and New York City (-$64,100) ranked second to last and last, respectively, for having the biggest taxpayer burden. However, in CCTB, Chicago and New York City swap positions. With $119,110 in total unfunded debt, the Windy City has the biggest combined taxpayer burden, followed by the Big Apple with $85,600. San Jose (-$43,120), Philadelphia (-$50,120), and Los Angeles ($-56,390) round out the bottom five.

The 10 cities ranked in CCTB are located in six states. Among states, California is in the worst shape financially, with a whopping $270 billion in unfunded liabilities. Because of the Golden State’s large population, its taxpayer burden is -$22,000.

Every city listed in the report has a balanced budget requirement. However, lawmakers routinely employ accounting gimmicks to skirt such rules. These tricks include inflating revenue assumptions, counting borrowed money as income, understating the actual costs of government, and, most commonly, neglecting to record a large portion of employee compensation. Many of these accounting ploys are illegal in the private sector.

Truth in Accounting recommends elected officials use complete accrual calculations in the budgeting process, determine the actual debt of the city (including all pension obligations), stop touting false balanced budget claims, and provide financial reports to taxpayers in a timely and accurate fashion.

Unfortunately, most lawmakers rely on more (and higher) taxes to close huge budget gaps. Given that budget deficits are typically the result of too much spending—not too few taxes—elected officials ought to focus on attracting businesses and residents to their states and cities by restraining spending, lowering taxes, and reducing unnecessary regulations. Only then will debt-ridden cities and states reverse the countdown clock and avoid economic apocalypse.

 

What We’re Working On

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In this Research & Commentary, Policy Analyst Tim Benson examines the 2018 edition of the Indicators of School Crime and Safety from the National Center for Education Statistics. There were 827,000 total incidents of theft and nonfatal violent victimization on school property in 2016–17, or 33 incidents for every 1,000 students. A little more than one in five students aged 12­–18 reported being bullied at school in 2017, and 69 percent of those students reported being bullied multiple days of the school year. Another 15 percent reported being electronically bullied in 2017. Benson argues these numbers show the urgent need for states to adopt Child Safety Accounts to help get kids into safer schools.

Energy & Environment
New Report Details How Oil and Gas Production Is Vital to New Mexico’s Budget
In this Research & Commentary, Policy Analyst Tim Benson writes about a report from the New Mexico Oil and Gas Association showing oil and gas production accounted for 32 percent of New Mexico’s general fund in fiscal year 2018. Money from the general fund is used to pay for education, public safety services, infrastructure, and health care. The report shows more than $1 billion in funding for K–12 and higher education came from oil and natural gas production in FY 2018.

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Budget & Tax
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From Our Free Market Friends
Absent Reform, Retirement Benefits Will Eat Over Half of Illinois’ Taxes
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Author
Arianna Wilkerson worked in government relations at The Heartland Institute from 2017 - 2019.