Prairie State Wire

Illinois received an 'F' from a nonpartisan accounting organization that measures state transparency and reliability in accounting practices.

“Any state that has a taxpayer burden higher than $20,000, we give an F to,” said Sheila Weinberg, a certified public accountant and the founder of Truth in Accounting, a government accountability group.

The burden per taxpayer throughout Illinois is currently $52,000, added Weinberg, who released the 11th annual Financial State of the States report on Sept. 22.

Weinberg made the announcement along with Truth in Accounting’s Director of Research, Bill Bergman, on a webinar called, “Ask the Experts: Was your state financially prepared for COVID-19.” The webinar was co-sponsored by the Union League Club of Chicago and moderated by Dan Proft, host of AM 560 radio show "The Answer."

“The states with the best economic outlook, as a general rule, are the states with lower levels of government activity in the overall economy as well as lower unionization and less regulation,” said Bergman. “The ones that provide higher prospects for future economic growth also tend to be associated with the states that are in a better financial position as opposed to what we have here in Illinois.”

Weinberg alleges that Susana A. Mendoza, comptroller for the state of Illinois, has kept two sets of books. 

“There’s consolidated books that they don't use that show a deficit versus the general fund statement that shows a surplus because of bad accounting,” she said.

Mendoza, a Democrat, has been the state’s comptroller since 2016.

“States that are in better shape have had a better housing market recovery since 2009,” said Bergman. “They also tend to provide better social services for poor people and more fundamentally in recent years there’s been a significant migration out of states in bad shape towards states in good shape, which is a challenge for the states that are in bad shape."

According to Moody's, Illinois has approximately $420 billion in unfunded pension liabilities, but Truth in Accounting assessed the number at $200 billion.

“It’s a reminder that in accounting we see precise numbers on these financial statements but behind the scenes there are some ambiguities. In this case, it arrives because of a dispute over what the right discount rate is in finance,” Bergman said. “Unfortunately in the 50 states, government accounting standards have the creed that states can use their expected investment rate of return, which more than a few accountants and financial economists believe is not the right discount rate to use and they use a higher expected investment return than the risk-free interest rate.” 

When the topic of conversation turned to fixing the accounting protocol in Illinois, Proft offered, “It's always been a matter of political will not a matter of good ideas or an understanding of accounting principles among professionals.”

The following are proposed corrective measures: 

Shifting from a defined benefit to a defined contribution plan based on a Wirepoints proposal, although it would likely require a constitutional change.

“You can shave tens of billions of dollars off of Illinois state unfunded pension liabilities by moving people to an option that actually tens thousands of state university retirement system employees chose right now, which is to take it out of the hands of the politicians and manage it themselves,” said Proft.

Change policy so that accounting can be improved.

“Overall, we have a cash shortfall problem and in order to fix that you need to either raise taxes or cut spending and in this case, we're going to have to do a combination of the two,” Weinberg said. “The legislators should have already been making those decisions. If they didn't continue to pretend they were balancing their budgets in the past, they would've had to raise taxes and cut spending. So, we think they really haven't allowed the citizenry to be a part of the process.”

Mandate state and local governments to follow ERISA rules as a condition for securing federal aid.

“That would require them to report their pensions more accurately,” said Weinberg. “They would have to use more reasonable discount rates and also they would be required to properly fund their pensions right now.”

Currently, ERISA rules exempt state and local governments.

“The other potential attractive feature of moving to an ERISA-like federal framework is it provides an arena that overrides state laws that restrict the ability to change retirement benefits,” Bergman said.