Each year Truth in Accounting (TIA) releases its Financial Transparency Score Report(Link), which ranks each state based on the transparency and accuracy of the states' annual financial reports. While government officials and the media bring a great deal of attention and focus to the state budgets, the results found in the comprehensive annual financial report (CAFR) are more important.

Each state is scored on eight criteria with a possibility of earning 100 points. The criteria include:

• Receive a clean opinion from an independent auditor (50 points)
• Include a net position not distorted by misleading and confusing deferred items (10)
• Report all retirement liabilities on its balance sheet (statement of net position) (10)
• Be published within 100 days of the government's fiscal year-end (10)
• Be easily accessible online (5)
• Be searchable with useful links from the table of contents and bookmarks (5)
• Be audited by an independent auditor who is not an employee of the government(5)
• Measure the net pension liability using the same date as the CAFR (5)

While there have been many changes in 2020, some things stayed the same. Connecticut remains the least transparent state in the country with a score of 49 out of 100. The state does not prepare a CAFR for its largest pension plan and uses a state official, the state auditor, to audit the state's CAFR. Connecticut's net position is also inflated by $6.6 billion, largely because the state defers recognizing losses incurred when the net pension liabilities increase.

But even in 2020, there is still some good news, New York increased its transparency score by six points. It is now tied with Utah for the most transparent state with a score of 89. Another state with a large improvement was Nebraska. The state's transparency score improved by 19 points, mostly because the state received an unqualified (clean) opinion this year versus the qualified opinion it received in the previous year.

Another piece of good news is that hidden debt is becoming a thing of the past. In FY 2019, total hidden debt among the states amounted to $132 billion. This hidden debt largely comes from state governments excluding some pension and other post-employment benefits (OPEB) plans from their balance sheets, such as teacher pensions, despite being responsible for the contributions. Many government budgets also do not take these long-term liabilities into account, which is why TIA calls for full accrual calculations and techniques or FACT-based accounting. This type of measurement is useful in budgeting and accounting for situations in which benefits are promised and earned in one year, but not paid until future years.

comments powered by Disqus