Iowa Hiding 85 Percent of Retirement Debt

by Truth in Accounting

Truth in Accounting (TIA), a Chicago-based think tank that analyzes government financial reporting, released a new report titled, The Financial State of Iowa. In this report, TIA researchers found that Iowa did not report $1.6 billion worth of its retirement debt on the state’s balance sheet.

TIA researchers also discovered that Iowa only reported $286 million in pension and retirees’ healthcare benefits, yet owes $1.9 billion. Because the state government uses outdated accounting methods, a significant amount of liabilities are excluded from its financial reporting.

When TIA researchers included the $1.6 billion of hidden debt, they discovered that Iowa:

● owes $8.3 billion in bills;
● has $9.2 billion available to pay bills; and
● has almost $939 million available to pay future bills

If Iowa’s $939 million surplus were divided among its taxpayers, each taxpayer’s personal share would be around $900. “While Iowa’s officials deserve applause for having a state surplus, truthful and transparent accounting practices are absolutely necessary to avoid future financial issues,” asserts TIA CEO and founder, Sheila Weinberg. “Until Iowa’s financial data is truly accurate and transparent, citizens cannot knowledgeably participate in addressing the state’s financial issues.”

Data from the study was derived from Iowa’s June 30, 2014 audited Comprehensive Annual Financial Report and retirement plans’ actuarial reports.

Iowa has $28.2 billion in assets, but most of these assets are not available to pay state bills.

The $13 billion of capital assets, such as roads, buildings, and land should not be sold to pay bills. The use of $6 billion of the assets is restricted by law or contract.

That leaves $9.2 billion of state’s assets available to pay $8.3 billion of bills as they come due.

Iowa’s elected officials seem to promise only the amount of benefits they can afford to pay.

Each Taxpayer’s Share of the Financial Surplus is $900


The state has accumulated bonds of $5 billion and other liabilities of $3.4 billion. The calculation of assets available to pay bills does not include capital assets, so $2 billion of related debt is removed from the calculation of State bills.

Unfunded employees’ retirement benefits represent 23% of state bills. These unfunded liabilities have accumulated because state employees have been promised $1.3 billion of pension benefits and $644.1 million of retirees’ health care benefits. Unlike most states, Iowa has the assets needed to pay these liabilities.

Iowa’s elected officials seem to promise only the amount of benefits they can afford to pay.

A detailed study of Iowa’s actuaries’ schedules found retirement benefits totaling $1.9 billion have been promised, but not funded. A review of the state’s balance sheet determined only $286.2 million of these liabilities are reported. This means the state does not report $1.6 billion of retirement liabilities on its balance sheet.

Methodology

TIA researchers use a thorough approach to determine the state of government finances. This approach compares all bills–including those related to retirement systems–to the state’s assets available to pay these liabilities.

TIA begins its analysis by identifying all assets, including capital assets (e.g., buildings, roads, bridges, parks, etc). and other assets (e.g., cash, investments, and money) in fund accounts. Some of these assets are available to pay a state’s bills or liabilities, while others are restricted by law or contract. The restricted assets are removed from the total, as are capital assets because they cannot be easily converted to cash. The result is a calculation of a state’s Assets Available to Pay Bills.

TIA then identifies Total Bills, which include liabilities disclosed in a state’s financial report such as accounts payable, bonded indebtedness (bonds, and pension and OPEB obligations) found in the state’s and its retirement systems’ Comprehensive Annual Financial Reports (CAFRs).

 

Founded in 2002, Truth in Accounting is dedicated to educating and empowering citizens with understandable, reliable, and transparent government financial information. Sheila Weinberg is a Certified Public Accountant with more than 30 years of experience in the field.

Reprinted with permission from Truth in Accounting’s Press Release dated July 23, 2015. http://www.statedatalab.org/state_data_and_comparisons/detail/iowa.

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