In fiscal year 2022, a staggering 70 percent of the largest cities in the United States found themselves unable to meet their financial obligations, according to a Truth in Accounting (TIA) analysis. Among the 75 largest cities, a total of 53 lacked the funds necessary to cover all their bills. TIA revealed that although these cities possessed $307.4 billion in assets, their collective debt reached a daunting $595.3 billion.
Pensions and healthcare emerged as primary contributors to this mounting debt burden. TIA contended that to maintain the appearance of balanced budgets, elected officials resorted to accounting maneuvers, omitting certain government costs from budget calculations. This approach, however, shifted the financial burden onto future taxpayers. Commonly employed “accounting tricks” encompassed inflating revenue assumptions, categorizing borrowed funds as income, downplaying actual government expenses, and deferring payments until the subsequent fiscal year.
The report highlighted the prevalent practice of excluding “true compensation costs,” such as employee benefits, from budget considerations. TIA emphasized that while pension and other post-employment costs would only be disbursed upon employees’ retirement, they constituted current compensation costs earned during their service. By not incorporating these expenses into budgets, cities distorted their financial realities.
Market volatility also played a role in cities’ financial woes, especially in relation to pension investments. The report indicated that despite economic gains from federal COVID-19 relief funds and increased tax revenue due to the reopening of the U.S. economy, pension liabilities surged. The fluctuations in pension investments’ market values negatively impacted cities’ financial conditions, underscoring the risks associated with providing defined pension benefits.
TIA assessed the impact on taxpayers by calculating a “taxpayer burden,” dividing the revenue needed to cover unpaid costs by the estimated number of taxpayers. In terms of fiscal health grades, a mere 1 percent of the evaluated cities received an A, while the majority received D grades, followed by C and B grades.
Cities with the most significant surpluses included Washington, D.C., Irvine, California, Plano, Texas, Lincoln, Nebraska, and Oklahoma City. Meanwhile, cities burdening taxpayers the most, such as New York City, Chicago, Honolulu, Philadelphia, Portland, New Orleans, Miami, Milwaukee, Baltimore, and Pittsburgh, often had Democratic leadership, highlighting potential ideological influences on financial management.
