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Accounting Analysis Puts Oklahoma’s Debt Burden at $9,000 per Family

By Patrick B. McGuigan | The capitolbeatok.com | 3-11-10

The Institute for Truth in Accounting (IFTA) has released a “Financial State of the State” report for Oklahoma. As the group based in Northbook, Illinois (the Chicago area) says, “the numbers are not good and they are getting worse every day. Oklahoma has only $3 billion to pay $19.4 billion of bills. Each Oklahoma family’s share of the state’s financial shortfall is $9,000.”

In an interview today (Thursday, March 11) with CapitolBeatOK, Sheila Weinberg, founder and CEO of the Institute, said, “The gap for Oklahoma is big, but frankly I’m surprised that it is not worse.” Asked to compare Oklahoma and other states, she replied, “To give you a couple of reference points, our analysis shows that the gap in Missouri is $12,000 per family. In Illinois, it is $32,000 per family.”

In her prepared statement released for the new “state of the state” analysis, Weinberg said, “To truly balance the state’s budget, the Governor and Legislature should not push the payment of our current bills into the future. And a state budget is not balanced if the pension funds are not adequately funded.” Weinberg’s analysis amplifies previous criticisms of Oklahoma’s unfunded mandates in areport from the Pew Center for the States.

Concerning pension and retirement systems, IFTA said,“years of overpromising pension benefits, while shortchanging the funding of the pension systems have resulted in the state’s pension funds being underfunded $14.8 billion. For the state’s fiscal year that ended June 30, 2009 only $1 billion was deposited, even though the pension systems’ actuaries calculated that a minimum of $1.3 billion should have been contributed.”

State Treasurer Scott Meacham, in a letter to the governor and legislative leaders dated April 12, 2007, said, “The biggest problem exists with the biggest pension fund – the Teachers’ Retirement System – where actuaries indicated that nearly three times more money than is currently received is needed to properly fund the system.”

Meacham wrote then, “If this problem is left unaddressed, the system will eventually require a cash infusion of staggering proportions to meet current payment obligations. This could result in the need for the state to raise taxes or dramatically reduce funding to vital state programs. The ultimate impact of continued inaction will be borne by citizens of the state of Oklahoma.”

Meacham recommended the issue be made a priority. For a couple of years, government officials worked to, as he put it then, “address the number one financial threat the state is facing.”

On Tuesday (March 9), in response to a question from CapitolBeatOK, Treasurer Meachamcommented anew on these issues: “By far the worst of all our systems in terms of unfunded liability is the teacher retirement system, and in fact it is one of the worst in the entire country. It absolutely does pull down our overall numbers.”

Meacham expressed some sympathy to directors of other Oklahoma state retirement and pension funds that are comparatively better funded. But he added, “if you are a financial analyst your job is to look at the entire state, to look at [pension/retirement programs] as a group because they are all, put together, a long-term obligation. These are long-term obligations of the state and there’s really no choice but to consider them together.”

At his regular encounter with reporters last week, House Speaker Chris Benge said, “When it comes to the pension and retirement liabilities, it’s really frustrating. It’s a really serious problem. Those of us at the Capitol now are having to deal with decisions made decades ago. We need to try to stop the bleeding.”

Benge continued, “No more unfunded mandates, that’s a really good place to start. We made that decision in the Legislature 4 or 5 years ago and we’ve stuck to it. We also set the objective to get to an additional $60 million a year in direct deposits into the retirement system. After 16 years for example that would bring the system to 80% funding, but that was before the crash. Bottom line is we have to be committed -- to be, and to remain, disciplined.”

IFTA was critical of past practices in Oklahoma, saying in its prepared statement, “For decades governors and legislators have claimed balanced budgets, but now the state is more than $1 billion in debt.” Roger Nelson, chairman of the IFTA Board of Directors, observed, “You may ask how this can happen. Well, it all depends on how you count. Oklahomans need to demand that their elected officials use honest accounting to calculate a balanced budget.”

This year, the State Office of Finance reported $13.8 billion of net assets.  The Institute’s review of actuarial reports revealed $14.8 billion of off-balance sheet pension liabilities. The Institute says there are three questions that should be asked of legislators and the governor to determine whether or not the budget is actually balanced: “Will our bills be paid on time? Will you borrow money? Will you pay the required pension contributions?”

Weinberg warned, “Debt has become our country’s drug of choice, in the states and nationally. Until we are honest with ourselves about how much we really owe, we can’t begin to solve this problem.”

Legislators in two states, Florida and Illinois, have introduced the Truth in Accounting Act in their respective states. As Weinberg explained the TAA in an interview with CapitolBeatOK, “The Truth in Accounting Act would require states to disclose the true costs of pensions and health care systems. During their budget processes, states would be required to prepare a simple to read balance sheet, which would include the unfunded retirement plans’ liabilities. Then they would be required to illustrate what would happen to the state’s financial condition if the proposed budget was enacted. The legislation would also require states to work with actuaries to calculate the costs of pension benefit enhancements before legislators vote on these changes.”

The Oklahoma “Financial State of the State” is available at two web addresses tied to Weinberg’s group: www.TruthInAccounting.org and Oklahoma.StateBudgetWatch.org. The group’s study provides an accounting by outlining the financial situation of the state, including unfunded liabilities to the state’s pension systems.

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