By: Bethany Blankley | The Center Square
In fiscal 2022, 70 percent of the largest cities in the U.S. did not have enough money to pay their bills.
In the latest comprehensive analysis of the fiscal health of the 75 most populous cities in the U.S., 53 did not have enough money to pay all of their bills, according to a Truth in Accounting analysis of the latest annual comprehensive financial reports from 2022.
In its eighth annual Financial State of the Cities report, TIA found that the 75 largest cities in the U.S. had $307.4 billion worth of assets available to pay bills but their debt, including unfunded retirement benefit promises, totaled $595.3 billion.
Pension and healthcare debt accounted for the majority of debt owed, according to the analysis. Pension debt totaled $175.9 billion; other post-employment benefits (OPEB), mainly retiree health care, totaled $135.2 billion.
All 75 cities are required by law to have balanced budgets. For those with debt, in order to claim their budgets were balanced, TIA argues elected officials didn’t include all government costs in budget calculations, thereby pushing costs onto future taxpayers. Instead, they used “accounting tricks,” including “inflating revenue assumptions, counting borrowed money as income, understating the true costs of government, and delaying the payment of current bills until the start of the next fiscal year so they aren’t included in the budget calculations.”
“The most common accounting trick” used to understate costs is excluding “true compensation costs” of employee benefits like health care, life insurance, and pensions, the report explains.
“While pension and other post-employment costs, such as health care, will not be paid until the employees retire, they still represent current compensation costs earned and incurred throughout their tenure.” Cities should include these contributions in their budgets, TIA says.
TIA also found that some elected officials “have used portions of the money owed to pension and OPEB funds to keep taxes low and pay for politically popular programs. Instead of funding promised benefits now, politicians have charged them to future taxpayers” to appear to have a balanced budget while city debt increases, TIA said.
Some of the financial woes can be attributed to the market value of pensions, the report explains.
“In 2022, the cities continued to receive and spend federal COVID-19 relief funds, and as the U.S. economy reopened, they took in additional tax revenue. Such economic gains were offset by increases in their pension liabilities, which were caused in large part due to decreases in the market value of pension investments,” the report states. “Over the past few years, investment market values have swung dramatically. In 2022, this volatility negatively impacted most cities’ pension investments and their financial condition, which demonstrates the risk to taxpayers when cities offer defined pension benefits to their employees.”
To show how taxpayers are impacted by cities not having enough money to pay their bills, TIA divides the amount of revenue needed to cover unpaid costs by the estimated number of taxpayers. This calculates “a taxpayer burden.” When cities have funds left over after paying their bills, TIA divides the amount by the estimated number of taxpayers to calculate “a taxpayer surplus.”
Cities are also graded according to their fiscal health, taxpayer burden or surplus, balanced budget requirements, and other factors.
Of the 75 cities evaluated, only 1% received an A grade for fiscal health. The majority received D grades, followed by C and B grades, according to the analysis.
The five cities with the greatest surpluses were Washington, D.C. ($10,700), Irvine, California ($6,100), Plano, Texas ($5,100), Lincoln, Nebraska ($4,100), and Oklahoma City ($2,900). Rounding out the top ten with greatest surpluses were Aurora, Colorado; Fresno, California; Raleigh, North Carolina; Virginia Beach and Corpus Christi, Texas.
Of 22 cities reporting surpluses, the majority, six, were in California.
Of the 10 cities with the greatest taxpayer burden, nine are run by Democrats. New York City has the greatest taxpayer burden (-$61,800), followed by Chicago (-$42,900), Honolulu (-$24,200), Philadelphia (-$20,400), Portland (-$20,100), New Orleans (-$18,200), Miami (-$15,500), Milwaukee (-$15,300), Baltimore (-$14,100), and Pittsburgh (-$13,000).
New York City, which has historically ranked as the worst for fiscal health, attributed much of its financial woes to “COVID-19,” mentioning it 38 times in its financial report, according to the analysis. “Despite receiving $6.5 billion in COVID relief grants and a $1.3 billion increase in tax revenues,” TIA points out that New York City still needed $6.1 billion to pay its bills.
TIA notes that cities not properly funding pension and retiree health care promises “burdens future taxpayers and puts retirees at risk of not receiving promised benefits.”
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