Monday, June 27, 2011

Where Ohio stands in economic competitiveness

Several reports have been released lately that rank state standings on a variety of items.

The first is not good news. The Institute for Truth in Accounting released their analysis of the 'true' fiscal condition of states. In a press release, they write:

Only four U.S. states have sufficient assets to pay their debt and obligations related to pension and retirees' healthcare

Chicago, (June 27, 2011) -- Today, the Institute for Truth in Accounting (IFTA) announces completion of a significant, comprehensive study of all 50 states' assets and liabilities, including pension and retirement healthcare obligations. The study determined that six states had a per taxpayer burden over $20,000: Connecticut ($41,200), Illinois ($26,800), Hawaii ($25,000), Kentucky ($23,800), Massachusetts ($20,100) and New Jersey ($34,600). The Taxpayer Burden represents the funds that will be needed to pay the commitments the state has already accumulated divided by the state's taxpayers.

'If governors and legislatures had truly balanced each state's budget, no taxpayer's financial burden would exist,' said Sheila Weinberg, Founder and CEO of the Institute. She continued, 'A state budget is not balanced if past costs, including those for employees' retirement benefits, are pushed into the future.'

The study found four states (Nebraska, North Dakota, Utah and Wyoming) have assets available to pay their debt and obligations related to pension and retirees' healthcare.

The study reviewed each state's Comprehensive Annual Financial Report to offset assets against liabilities. For the first time, a detailed analysis of pension and healthcare liabilities uncovered the states' actual obligations. From these calculations, the Institute was able to determine the Taxpayer's Burden.

Employee compensation packages include retirement benefits. A portion of these benefits is earned each period and should be included in the current budget as a portion of current employee compensation costs. Instead most states handle many of benefits on a 'pay-as-you-go' basis. This obligates future taxpayers to cover these past costs - without receiving any benefits or services.

'Though 49 of the 50 states have constitutional or legal requirements to balance budgets, most states employ a variety of financial maneuvers to circumvent this requirement,' said Roger Nelson, chair of IFTA and former vice chair of Ernst & Young. 'The largest of these maneuvers is related to employee compensation.'

Ohio does rank 20th in the list, putting us in the top half of the nation, but the money needed to pay our bills is just under $18.1 billion which equals a $4,700 burden for each taxpayer in the state.

While Gov. John Kasich and the Ohio legislature are taking steps to address these financial burdens, I'm not sure the proposed fixes to date will be enough to cover the obligations.

But if that wasn't enough, the 2011 ALEC-Laffer State Economic Competitive Index was also published and it puts Ohio 49th out of 50 states in terms of our economic performance ranking (see page 101 of the linked report). The good news is that they rank us 38th in terms of our economic outlook, "a forecast based on a state’s standing (equally weighted average) in the 15 important state policy variables shown below. Data reflect state + local rates and revenues and any effect of federal deductibility." It's still in the bottom half of the nation but at least our outlook is better than our performance.

A quote from Gov. Kasich included on the last page of the report:

“The data and analysis from ALEC on state economic conditions is a powerful resource for policymakers who care about reducing spending so they can begin reducing taxes. It’s both a report card and a score card. Frankly, Ohio’s not doing as well as it needs to do. The information that ALEC provides helps us understand our competitive position and helps spur us to do better.”

1 comment:

Timothy W Higgins said...

It seems astonishing to me that California is not among the top three in tax burden on its citizens, but perhaps having such a large population of 'tax slaves' provides a broader base to carry the load.

I have no doubt however, that they will continue to move up to their rightful place as #1 if given time, patience, and of course ... Jerry Brown.

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