Cooper: Our financially healthy state

Cooper: Our financially healthy state

September 30th, 2018 by Clint Cooper in Opinion Free Press

Tennessee Gov. Bill Haslam delivers one of his annual State of the State addresses to the Tennessee General Assembly in Nashville.

Photo by Mark Humphrey

Tennessee has the only surplus per individual state taxpayer of any state in the eastern portion of the United States, according to a recently released debt map.

Why is that important?

The individual taxpayer burden is critical because it indicates whether the state may have to consider raising taxes to cover its budget holes or whether it will have to cut services to do so. If states do either, the action necessarily involves pain to the taxpayer.

The relative financial health of a state also is important because it helps determine how expensive it will be for the state to borrow money and how it can spend the money it has. Just like the federal government, when money is tight, mandatory expenses are covered first, then whatever is left is all that's available for discretionary spending.

Taxpayer burden/surplus

Alabama: $11,800 burden per taxpayer

Georgia: $3,900 burden per taxpayer

Kentucky: $39,200 burden per taxpayer

North Carolina: $8,100 burden per taxpayer

Tennessee: $2,500 surplus per taxpayer

The map and accompanying commentary, published in the Washington Examiner, was compiled by Sheila Weinberg, a CPA who is founder and chief executive officer of Truth in Accounting, a nonprofit organization that researches government financial data and promotes transparency.

It shows Tennessee as one of only 10 states with a surplus per individual state taxpayer. The other states are in the Upper Midwest and Northwest.

Weinberg suggests the states with the largest surpluses benefit by sitting atop significant energy and mineral wealth. When that shale oil is extracted, processed and used, it produces exceptional tax revenue. The five wealthiest states, considering surpluses per individual taxpayer, are Alaska, North Dakota, Wyoming, Utah and South Dakota.

Tennessee does not have those attributes, but it nevertheless is one of the 10 that is able to pay off all its accumulated bills. Why?

The Volunteer State reaps most of its income from sales tax revenue. Indeed, only five other states — according to 2016 Census numbers — get a larger percentage of their income from sales tax revenue. When the economy is booming, as it is in 2018, sales tax revenues are plentiful. When the economy is not so good, sales tax revenues are still not bad because people must still buy many things.

In ranking Tennessee in the top five in its annual "Rich States, Poor States" report in 2017, the American Legislative Council put it this way: "This [ranking] is largely due to the state's many responsible fiscal policies, including no personal income tax, the recent repeal of the Hall Tax, the recent repeal of the death tax and the state's right-to-work status."

The state in 2017, according to Truth in Accounting information, had $18.1 billion of assets available to pay the state's bills of $13 billion. The $5.1 billion left, divided by the number of taxpayers, equals about $2,500 per person.

The financial reports of each state, according to Weinberg, were taken from each state's Comprehensive Annual Financial Reports.

They show, for instance, that states like Connecticut, Maryland and New Jersey have high median household incomes of $75,900, $73,000 and $68,000, respectively, but their governments have spent so much over the years that taxpayers in those states have a debt per individual taxpayer of $53,400, $16,000 and $61,400, respectively.

It's no coincidence that eight of the 10 states that show a surplus per individual taxpayer, including Tennessee, are governed by fiscally conservative Republicans. One of the other states, Alaska, is governed by an independent who originally planned to run as a Republican, and the state has been governed by Republicans longer than it has been by Democrats. Only Oregon, among the 10, is governed by a Democrat.

And of those states with the largest debt per individual taxpayer, six of the 10 are governed by a Democrat.

Most of that debt, according to Truth in Accounting, "comes from unfunded retiree benefit promises, such as pension and retiree health care debt." Across the country, pension debt totaled $837.5 billion, and other post-employment benefits, including health care coverage, totaled $663.1 billion.

Tennessee had $1.8 billion in unfunded pension benefits and nearly $1.8 billion in unfunded retiree health care, placing it in the top 10 among the states for the lowest amount of unfunded benefits due.

Interestingly, 49 of the 50 states have balanced budget requirements but still rack up debt by using, according to Truth in Accounting, accounting tricks such as inflating revenue assumptions, counting borrowed money as income, understating the true costs of government, delaying the payment of current bills until the start of the next fiscal year (so they aren't included in calculations) and hiding a large portion of employee compensation (such as benefits) from the balance sheet and budget.

If you live in Tennessee, be grateful for the state's sound economic policies, and remember how we got here. The federal government could take a few lessons.

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