Truth in Our Accounting and Budgeting

by Jennifer L. Crull

Back in January of this year, we ran two articles from Sheila Weinberg from the Institute for Truth in Accounting (http://www.truthinaccounting.org/). This month we are looking at the report that this organization has put out the last two years that looks at the financial state of the states. This report spotlights the top five Sunshine States and the bottom five Sinkhole States. While Iowa is neither in the top five or the bottom five, I believe it is important for all Iowans to read about how the changes that have occurred over the last few years have made a difference in the financial health of our state and what it means to us as taxpayers.

The past two years of budget squabbling in Des Moines have made the taxpayers of Iowa very aware of the Iowa Code Section 8.54. This limits expenditures to 99 percent of revenue. The section explicitly states:

3. Except as otherwise provided in this section, the state general fund expenditure limitation for a fiscal year shall be ninety-nine percent of the adjusted revenue estimate.
4. The state general fund expenditure limitation amount provided for in this section shall be used by the Governor in the preparation of the budget under section 8.22 and approval of the budget and by the General Assembly in the budget process. If a source for new revenues is proposed, the budget revenue projection used for that new revenue source for the period beginning on the effective date of the new revenue source and ending in the fiscal year in which the source is included in the revenue base shall be an amount determined by subtracting estimated tax refunds payable from the projected revenue from that new revenue source, multiplied by ninety-five percent. If a new revenue source is established and implemented, the original state general fund expenditure limitation amount provided for in subsection 3 shall be readjusted to include ninety-five percent of the estimated revenue from the new revenue source.[1]

The Institute for Truth in Accounting’s second edition of The Financial State of the States spotlights the lack of truthful accounting and transparency in state government. Iowa is no different than most of the other states in the country. In reviewing the report, you can see that only six states have a surplus of money to pay their bills: Alaska, Wyoming, North Dakota, Utah, Nebraska, and South Dakota.[2] The five states with the worst Taxpayer Burden are Connecticut, New Jersey, Hawaii, Illinois, and Kentucky. This information is summarized for all 50 states in Table One. The table shows you the different areas that states have to draw on to pay their bills and what the bills or liabilities are for the state. As you review the final line in the table you will see that all the states together have over $1 trillion in debt.

As we take a specific look at Iowa in this year’s report, Iowa was short over a half-million dollars in meeting its bills for the year, which translates into a Taxpayer’s Burden of $500 per taxpayer in Iowa. This data is for the fiscal year ending June 30, 2010. The previous year’s report spotlighted why Iowa is having difficulty with debt. The report spotlights the following problems for Iowa:

The state of Iowa reported liabilities, not related to capital assets, of $5.6 billion. Institute for Truth in Accounting’s detailed analysis discovered $1.9 billion of additional retirement benefits have been promised. When these retirement systems’ obligations are included, the state’s bills total $7.5 billion.

Iowa statutes require the legislature to pass a balanced budget. One of the reasons Iowa is in a precarious financial position is state officials use antiquated budgeting and accounting rules to determine true compensation costs.

Since retirement benefits are not immediately payable in cash, Iowa politicians have ignored most of these true compensation costs when calculating “balanced” budgets. Furthermore, the state has set aside only 71 cents to pay for each dollar of these promised benefits.

Truthful budgetary accounting would include the portion of retirement benefits employees earn every year they work in the compensation costs.

Accurate accounting requires all real and certain expenses be reported in the state’s budget and financial statements when earned, not when paid.[3]

The Institute for Truth in Accounting also has a flyer about Iowa on their Website that looks at the state of Iowa’s budget as of the end of June 30, 2011. The flyer shows at the end of FY 2011, the Taxpayer Burden had dropped to $300, but it also reported that:

The State of Iowa has promised $7.0 billion of pension and retirees’ health care benefits, but only $4.9 billion has been set aside to fund these benefits. Therefore, Iowa has less than 70 cents to pay for each dollar of promised benefits.[4]

In FY 2009 it was 71 cents and at the end of FY 2011 it dropped slightly down to 70 cents. This is a massive liability for our state, and we have to hope that things will change in the state to correct this problem.

This is why we reprinted the articles in January to start the change process for the state. As you will remember from the article on F.A.C.T.:

To bring truth and greater transparency to state budget processes, the Institute for Truth in Accounting has developed a budgeting system called “Full Accrual Calculations and Techniques,” or F.A.C.T., which would require Governors and Legislatures to recognize expenses when incurred regardless of when they’re paid.[5]

So as a taxpayer it is important to ask questions about our elected officials and find out what the plan is to deal with the lack of assets to pay for pension and retirees’ health-care benefits. As we move into the final leg of the election process, remember that taking the time to inform yourself is the best defense to fight the battle for future generations’ debt loads.


Endnotes
[1] State of Iowa, Iowa Code, Section 8.54, <http://search.legis.state.ia.us/nxt/gateway.dll/ic?f=templates&fn=default.htm> accessed on September 14, 2012.
[2] “The Financial State of the State,” Institute for Truth in Accounting, September 2012, pp. 54-55.
[3] “The Financial State of the State,” Institute for Truth in Accounting, FY 2009, <http://iowa.statebudgetwatch.org/files/2011/07/IA-P-2009-.pdf> accessed on September 14, 2012.
[4]“The Financial State of the State,” Institute for Truth in Accounting, FY 2011, <http://iowa.statebudgetwatch.org/files/2012/09/IA-2011-Trifold.pdf> accessed on September 14, 2012.
[5] Sheila Weinberg, “F.A.C.T.-Based Budgeting Provides Honest State Numbers,” Iowa Transparency Newsletter, January 2012, <http://www.iowatransparency.org/jan12newsletter.html> accessed on September 14, 2012.

IOWA TRANSPARENCY NEWSLETTER is a monthly newsletter reporting on government transparency in our state.

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