If you live in one of America’s biggest cities, it’s likely your municipal government cooks the books, overestimating money coming in and undercounting bills.
Truth in Accounting (TIA) released its latest report, “Financial State of the Cities 2023,” earlier this month. New York is the worst city, but Boston and Philadelphia also received failing grades.
Many cities mislead taxpayers, TIA watchdogs say.
“What we find is they take their books and they hide the true cost of government by not putting all their compensation costs in their budgets,” said Sheila Weinberg, a certified public accountant and TIA founder.
TIA assigned a grade of A to F for each city based on the average taxpayer obligation. A or B means each taxpayer has a surplus of between $1 to $10,000. C to F means there is an average taxpayer burden. Boston was given a D; Philadelphia an F.
“Philadelphia’s elected officials have repeatedly made financial decisions that left the city with a debt burden of $11.9 billion. That burden came to $21,800 for every city taxpayer,” the report said.
Boston wasn’t as bad, but its books aren’t balancing either. The city has a debt burden of $2.4 billion. “That burden came to $9,500 for every city taxpayer. Boston’s financial problems stem, mostly from unfunded retirement obligations that have accumulated over the years,” according to the report.
And the Big Apple? New York has the worst financial record in the United States, leaving each taxpayer with a $56,900 tab and earning the city an F.
“The most common accounting trick cities use is to hide employee benefits — such as healthcare, life insurance and pensions — from the current budgeting process by not acknowledging they exist.
“Cities become obligated to pay for these benefits as employees earn them. Although these retirement benefits will not be paid until the employees retire, they still represent current compensation costs because they were earned and incurred throughout the employees’ tenure,” TIA reports.
The study examined the cities’ spending practices and unreported liabilities. Fifty municipalities didn’t have enough money to pay all bills at the end of the last fiscal year, even though they presented themselves as having balanced budgets. “To balance their budgets, elected officials did not include the full/entire cost of the government in their budget calculations and pushed costs onto future taxpayers,” according to the report.
Unlike the federal government, cities must balance budgets, yet many don’t, the study said. It cited accounting gimmicks: Inflating revenue assumptions. Counting borrowed money as income. Delaying payment of current bills until the start of the next fiscal year.
Weinberg contends most cities pay debts on a “pay-as-you-go basis.” The near-term problem, she adds, is sometimes disguised by bull markets as well as recent federal government COVID payments. She cautioned a recent bull market can make a city’s bottom line seem healthy, but “in a bear market it will be in a lot of trouble.” Cities, she adds, should lower investment return expectations.
But all hope is not lost.
Irvine, Calif., has consistently remained in TIA’s top five, with a taxpayer surplus of $5,400. And Los Angeles managed to jump from 44th to number four in city rankings for low taxpayer liability — though it may be temporary.
Part of the improvement came from COVID stimulus money from the federal government. And the booming 2021 stock market helped, too.
“The result was a dramatic decrease in the city’s pension liability and a corresponding increase in its money available to pay future bills,” according to the report. “Unfortunately, the city’s 2022 results will be adversely affected by the negative investment earnings experienced by two of its pension systems.”