(The Center Square) – A large majority of the 75 largest cities in the U.S. are in financial trouble, according to a new report.
Truth in Accounting released the report, which evaluated the 75 largest cities in the country, arguing that the majority of cities have financial problems and owe thousands of dollars in debt per taxpayer.
“This means that to claim their budgets were balanced – as is required by law in the 75 cities – elected officials have not included the full cost of the government in their budget calculations and have pushed costs onto future taxpayers,” the report said.
The group came to these numbers by taking into account financial obligations cities do not always consider in their budgeting.
Truth In Accounting has called on Congress to adopt full accrual accounting, which “provides a far more complete and transparent picture of financial performance. It accounts for all financial obligations – both current and future – by recognizing expenses when they are incurred rather than when cash changes hands.”
The group argues that the published debt figures for local, state and federal governments are misleading and actually much higher when you consider other factors like future unfunded liabilities.
For example, the federal government reports its national debt at around $36 trillion; Truth in Accounting says it is actually about 4.5 five times larger.
According to the report, retiree health benefits and pensions are a major weight around the necks of many city budgets, dragging them into debt.
“The 75 cities had $321 billion worth of assets available to pay bills; their debt, including unfunded retirement benefit promises, amounted to $621.7 billion,” the report added. “Pension debt totaled $192.1 billion, and other postemployment benefits (OPEB), mainly retiree health care, totaled $136.4 billion.
The report evaluated the cities as of fiscal year 2023. It found New York City as the worst city fiscally, followed by Chicago, Portland, New Orleans and Honolulu. The best city came in as Washington, D.C., followed by Lincoln, Irvine, Tampa and Cleveland.
“This year’s research indicates that as the U.S. economy continues to recover, cities have reported revenues surpassing their expenses,” the report said. “However, the growing burden of unfunded pension and retiree healthcare liabilities has overshadowed these financial gains. These liabilities now account for more than half of the cities’ non-capital debt and are laden with risks and uncertainties that often lie beyond the control of legislators, taxpayers, and even those managing the plans.”
From the report:
The uncertainty surrounding estimated future benefit payments is significant, as it depends on unpredictable factors such as life expectancy, inflation rates, healthcare costs, and investment performance. Even small changes in these assumptions can drastically alter the total future liabilities. For example, in more than 20 cities, a reduction in the discount rate – the interest rate used to determine the amount of money needed today to cover future benefits – resulted in a notable decrease in the dollar amount of unfunded retiree healthcare benefits.
Cities without funds set aside for these benefits are assumed to need to borrow money to cover the costs, meaning the discount rate must reflect the borrowing rate the government would face. This reduction in the discount rate was driven by the Federal Reserve’s decision to lower interest rates, which in turn led to a notable decrease in the rate at which governments could borrow money. The variability in these assumptions makes it challenging for cities to plan accurately for future obligations, further complicating efforts to ensure sufficient funding.