In spring 2020, state and local governments were confronted with cascading costs in managing the public health response to the pandemic, spiking unemployment, and steep sales tax and user fee revenue declines resulting from business disruption and restrictions.
The situation appeared dire.
During the second quarter of 2020, from April to June, the U.S. Government Accounting Office (GAO) reported state and local government revenues had declined by $61 billion compared to the same three-month span the year before.
Overall in 2020, state and local governments would report $117 billion less in revenues than the previous year, mostly stemming from that April-June span, according to estimates of 2020 pandemic-related revenue losses filed with the U.S. Treasury.
However, fueled by the gush of federal cash, the economy—along with state and local government sales tax collections—rebounded sharply beginning in July 2020, largely spurred by the March adoption of the $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act.
The U.S. Department of Commerce’s Bureau of Economic Analysis (BEA) subsequently reported government revenues in the third quarter of 2020, July–September, were 23 percent above pre-pandemic levels “thanks to massive federal transfer payments from COVID relief legislation.”
Other factors that boosted government revenues include inflation ignited by stimulus-check spending, which leavened sales tax collections; a spike in capital gains tax revenues generated by a strong stock market; federal padding of state unemployment relief; and a pandemic-induced increase in home-based employment.
According to the National Association of State Chief Budget Officers, states collected nearly 15 percent more in total income tax revenue in Fiscal Year 2021 than the year prior, totaling nearly $455 billion.
With the rebounding stock market, boosts in sales tax revenues and coffers flush with federal dollars, a December 2021 Urban Institute report documented total state and local government revenues in the second quarter of 2021 increased by 20 percent over Q2 2019 revenues.
And so, while it would have been a shocker in April 2020, it was actually no surprise that all 50 states reported “budget surpluses” when Fiscal Year 2022 began for the vast majority of states on July 1, 2021.
In fact, according to the Committee for a Responsible Federal Budget, 29 state legislatures opened 2022 legislative sessions with more than $1 billion in “surpluses” in their budgets.
Overall, the committee maintained in January, that about $800 billion of the $5.7 trillion in federal pandemic relief and stimulus assistance remained unspent or uncommitted.
All this state budget “surplus” talk is sheer baloney, maintains Truth In Accounting (TIA) founder and CEO Sheila Weinberg who asks, “Do you really have a surplus when the government is not paying down debt?”
According to TIA’s 2021 Financial State of the States report published in September, the nation’s 50 states collectively ended FY 2020 more than $1.5 trillion in debt, mostly from $926.3 billion in public employee pension and $638.7 billion in retiree healthcare benefits that are “unfunded promises” not included in budget deliberations.
Weinberg told The Epoch News that few state legislatures are using the flush of federal aid to “pay down their debt” and, instead, many are “touting a surplus” to justify “additional tax cuts” and “guaranteed income programs” and other politically popular initiatives.
“State legislatures need to be more truthful with the public that, while they may be running ‘cash surpluses,’ many [states] are truly in debt and they need to truly balance their budgets,” she said. “Instead, they are talking about spending ‘surpluses’ on additional programs” and tax breaks.
Weinberg, a Certified Public Accountant with more than 40 years of experience in government finance, founded Chicago-based TIA in 2002.
The group has carved a niche for itself among government and spending watchdogs by insisting all liabilities be included—and counted—when analyzing budgets, and then breaking out an expenditures-and-revenues measure that calculates a “taxpayer burden” for every United States taxpayer.
TIA’s calculations have been frequently dismissed by government agencies and other forensics accounting experts as over-simplified, especially regarding public employee pension and retiree benefits, because they do not account for amortization periods incorporated into budgets.
Texas, for instance, considers pension debt status “healthy” if all it “owes” can be paid through investment returns and contributions within a 31-year period. Georgia requires a 25-year amortization period.
But Weinberg maintains this is an “accounting trick” that allows governments to accumulate debt by drafting budgets on a “cash basis.”
“The reason that the government doesn’t include [all liabilities] in their debt numbers is they don’t see, they don’t count, anything beyond the checks that are written” for that budget, she said, precluding “those numbers on the other side of the balance sheet” from being counted.
Pension funds are particularly useful for government budget planners because it is essentially a pliable cache of cash collected through contributions, Weinberg said.
The funds “need to be looked at like credit cards that need to be paid off,” she said. “Can you really have a surplus when you are not paying down even the minimum on your credit card?”
The governors of Georgia and Kansas want to give tax refunds anywhere from $250–$500 to state residents from the states’ budget “surpluses.”
Minnesota’s Gov. Tim Waltz has proposed “rebate checks” of $500 for individuals and $1,000 per married couple,
Wisconsin’s Gov. Tony Evers has called for a “surplus” bonus of $150 for every resident, while Idaho state lawmakers approved a tax cut of either $75 to each resident or a rebate equal to 12 percent of their 2022 state income tax bill.
“Again, what are they doing about the debt? Nothing,” Weinberg said noting the “accounting trick” that allows governments to avoid disclosing all debt is a bipartisan practice that will allow incumbents seeking reelection in 2022 to tout their fiscal acumen in pulling a budget “surplus” from pending disaster.
Such claims are a deceit that “harms democracy” because taxpayers “are not told the truth” about government budgeting practices, she said.
Voters “need to be knowledgeable or else they are going to vote for [incumbents] based on ‘surpluses,’ thinking, ‘We’re going good,’’’ Weinberg said.
“No. We’re not ‘going good’ and you [as a taxpayer] are hugely in debt.”
Reporting from The Epoch Times.
