$2.8B shortfall earns Washington a ‘C’ on Truth in Accounting fiscal report

Washington state had $53.3 billion available to pay $56 billion worth of bills in fiscal year 2021, earning it a No. 24 ranking and a “C” grade in Truth in Accounting’s recently released “State of the States 2022” report. Fiscal year 2021 in Washington ran from July 1, 2020 through June 30, 2021.

The $2.8 billion shortfall breaks down to a burden of $1,000 per taxpayer, according to the Chicago-based financial watchdog.

A “C” grade indicates a taxpayer burden between $0 and $4,900.

The organization determined its rankings and letter grades by looking at the most recent data from all 50 states’ annual comprehensive financial reports for fiscal year 2021. Truth in Accounting found that 31 states did not have enough money to pay all their bills, meaning that in some states a heavy tax burden will be passed on to future taxpayers.

“Washington’s latest financial report indicated the state’s financial position improved in 2021 mostly due to a great deal of federal aid and dramatic increases in the value of pension system assets,” the report, released Monday, states.

That assessment of the pension system is in line with a Reason Foundation analysis earlier this year that found Washington is the only state with a pension funded ratio of more than 100%.

The Truth in Accounting report urged caution, characterizing the good news regarding the state’s pension system as theoretical.

“Record gains in the stock market in 2021 made funding levels of the state’s pension system appear healthier than in 2020, but much of that improvement is fading,” the report says. “Markets have lost an average of 14% value in 2022. Although pension liabilities decreased by $18 billion in 2021 due to the increase in investment value, much of the value increase is only on paper. Until the pension investments are sold, these liability decreases are not real. Given these facts, the state’s overall debt situation will likely further deteriorate over the coming year.”

The report went on to say, “With the temporary increase in the value of pension assets, Washington had 94 cents set aside for every dollar of promised pension benefits. But the state had no money set aside to pay promised retiree health care benefits. If benefits and funding are not changed, future taxpayers will be burdened with paying the underfunded retirement promises.”

Another reason for the state’s improved financial condition is “tax revenues that outpaced increases in expenses.”

Revenue collections for the 2021-23 biennium increased by approximately $43 million, according to September budget estimates released by the state Economic and Revenue Forecast Council.

Per last month’s revenue forecast, revenue growth for fiscal year 2022 is predicted to be 11.6%, with growth slowing to 0.7% in fiscal year 2023 before rebounding to 1.4% in fiscal year 2024 and 3.6% in fiscal year 2025.

Revenue for the 2021-23 biennium holds steady at $63.2 billion. Revenue for the 2023-25 is projected to be about $65.5 billion. That’s down slightly from the nearly $66 billion projected in June.

Other Pacific Northwest states fared better, according to Truth in Accounting, with Oregon and Idaho ranked in the top 10 and earning “B” grades.

A “B” grade indicates a taxpayer surplus between $100 and $10,000.

The top-ranked states were Alaska, North Dakota, Wyoming, Utah, and South Dakota. The bottom-ranked states were New Jersey, Connecticut, Illinois, Hawaii, and Massachusetts.

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