Kentucky’s per-taxpayer burden even higher than Oklahoma’s
Published: February 15th, 2011
By Patrick B. McGuigan
Published 15-Feb-2011
The Institute for Truth in Accounting (IFTA) has released its assessment of Kentucky’s “Financial State of the State.” Bottom line: The Bluegrass State’s unfunded per-taxpayer burden is $26,300, placing it among the minority of states thus far studied where the cost to pay off existing obligations is even higher than it is in Oklahoma.
The Sooner State’s per-taxpayer burden, which IFTA calculated last year based on Fiscal Year 2009 financial reports, is $14,600 per taxpayer.
In other recent analyses, Oklahoma was assessed more negatively than both Pennsylvania and Alaska.
The institute based its conclusions for Kentucky on an intensive review of the State’s 2010 audited financial report. IFTA’s analysis concluded the state “is in a precarious financial position because it does not have the funds available to pay more than $32 billion of the State’s commitments as they come due. Each taxpayer’s share of this financial burden equals $26,300.”
In a statement sent to CapitolBeatOK, Sheila Weinberg, founder and CEO of the Institute, said, “A state budget is not balanced if past costs, including those for employees’ retirement benefits, are pushed into the future.”
The state of Kentucky reports assets of $44.1 billion, but more than $20.9 billion can be identified as off-balance sheet retirement liabilities.
Further, the institute said in today’s release, “More than $31.1 billion of the State’s assets cannot be easily converted to cash to pay State bills of $45 billion as they come due. These assets consist of capital assets, including infrastructure, buildings and land, and assets the use of which is restricted by law or contract.” To sum up, the state of Kentucky “does not have the funds needed to pay for $32 billion of state obligations,’ according to Weinberg’s analysis (emphasis in the original release).
As is the case in nearly every one of the United States, many obligations found in the IFTA analysis are in pension/retirement plans and/or retirement healthcare benefits. Restating the issue found in past studies, IFTA concludes, “Years of over-promising retirement benefits, while shortchanging funding, have resulted in the [Kentucky]’s retirement systems being underfunded by $24.8 billion. As of June 30, 2010, the state had set aside only 47 cents to pay for each dollar of benefits promised. As of that date only $21.4 billion was deposited into the retirement systems, even though the actuaries calculated that a minimum of $46.2 billion should have already been contributed.”
Today’s report from the institute noted that “On April 13, 2010 Kentucky lawmakers passed legislation that required higher contributions from employees, retirees and employers of the State Teachers’ Retirement System. This legislation reduced the Teacher’s Retirement System’s Unfunded Actuarial Accrued Liability (UAAL) from $6.2 billion down to $2.9 billion.”
Kentucky’s situation can be studied further here.
In response to questions from CapitolBeatOK about assumptions and methodologies in the Institute’s studies, IFTA’s Weinberg said:
“Our calculations include the assets that the state has that can be used to pay the debt. We do our best to determine the state’s share of the retirement systems liabilities (versus the local governments’ shares). I believe that nobody else includes the component units’ assets and liabilities in their calculations. We review each of the component unit’s financial report to determine if they have their own retirement plans.”
Weinberg continued, in a follow-up email, to explain the challenges for adequate analysis of pension and retirement plan obligations. She told CapitolBeatOK:
“Most of states’ financial information in relationship to retirement benefits is extremely difficult to calculate.
“Hundreds of billions of dollars of retirement systems’ liabilities are not reported on the face of the states’ balance sheets. Many times the liabilities cannot be found in the financial reports’ footnotes or required supplemental information.
“In many states the state and local governments are part of combined retirement plans. If this is the case, it is usually impossible to find the state’s share of the retirement plans’ liabilities. Even the administrators of the retirement plans do not have a break out of the state’s share. To calculate the state’s share we usually used the state’s share of the contributions made into the plans.”
At least one exception to these general rules, Weinberg said, was found in data for Wisconsin: “The Wisconsin pension plan report was very transparent with a listing of each governmental entities’ unfunded liability listed.”
Weinberg concluded:
“States have numerous component units, including authorities, colleges and universities. The information about these entities’ retirement systems is very limited in the state’s financial report. The full liabilities related to their own pension and retirees’ health care plans must be found in the footnotes of each entity’s financial report. Each of Florida 50 component units has unfunded retirees’ health care liabilities, all of which was not reported in the state’s financial report.
“The state’s share of the teachers’ retirement plan was also difficult to determine. We considered the state’s funding of the schools. If a vast majority of the school funding came from the state, then we considered the plan’s’ liability a state liability. To determine the state’s portion of school funding we had to track down financial reports of a good sampling of the schools. This required a review of the schools’ web sites, then it was usually difficult to find the school’s financial report, if one could be found at all.”