While Congress is trying to save Puerto Rico with the proposed H.R. 5278 Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) bill, history is doomed to continue to repeat itself unless real action is taken. Let’s face it: Many factors that contributed to Puerto Rico’s financial chaos were avoidable. Yes, Puerto Rico’s economy seems to have never fully recovered from the 2008 financial downturn with an unemployment rate around 12 percent, but part of this financial chaos is a result of flawed financial practices.
The Puerto Rican government has been masking debt growth with less-than-transparent accounting, spending beyond its means, and failing to produce timely financial materials. The reality: State and local governments and the federal government are doing the same thing. That’s why Truth in Accounting (TIA) analyzes government financials and produces understandable, reliable and transparent government financial summaries.
Our research shows Puerto Rico government officials have been hiding retirement benefits from their balance sheets. As a result, the territory actually has $45.7 billion in retirement debt. To exclude retirement benefits, government officials use accounting tricks to calculate the budget. And as mentioned, state governments are also using these flawed accounting practices. According to last year’s financials, Illinois excluded $117.8 billion of retirement liabilities, California hid $111.3 billion, and New Jersey hid $96.6 billion. These numbers are astronomical and put pensions and health care benefits at risk.
In order for Puerto Rico to pay off its debt, Puerto Rico’s taxpayers would have to pay a whopping $56,300 each — the territory’s taxpayer burden. When compared to U.S. states, New Jersey has the highest taxpayer burden amongst all 50 states last year with $52,300 and Connecticut is not far behind with a taxpayer burden of $48,600. Illinois has the third highest with a taxpayer burden of $45,000. These amounts are massive — they’re more than many citizens make in one year.
To make matters worse, the Puerto Rican government has failed to share timely, reliable financial information with its citizens. The latest financial report issued by the commonwealth is almost two years old and contains unaudited financial statements, which brings the reliability of the government’s numbers into question. It also took almost 600 days to get a financial report for FY2013, and the timeliness of Puerto Rico’s financial reporting has steadily deteriorated since the late 1990s.
But individual states are not innocent when it comes to producing timely financial reports either. New Mexico took the longest to produce their financial report, releasing it 407 days after its fiscal year end. Montana and New Jersey were not far behind with 336 days and 276 days respectively.
Taking a look at government finances through an international lens, we’ve also seen similar situations in Greece and — most recently — Brazil. Last year, Greece had over $350 billion in debt and almost withdrew from the Eurozone. The country also narrowly avoided defaulting on its debt after striking a deal with creditors. Brazil faces extreme economic and political turmoil with billions in deficit and a presidential impeachment as a result of illegally borrowing from state banks to balance the budget. Brazil’s Congress also recently passed a revised budget plan that would increase the budget deficit by increasing the country’s debt ceiling or limit.
Sound familiar? The United States government has increased the debt ceiling 78 times since 1960. Imagine asking the bank to increase your credit limit without paying off your minimum balance. Governments, both foreign and abroad, must hold themselves accountable for spending beyond their means.
Puerto Rico is in serious financial trouble, but so are many individual governments. As a Certified Public Accountant with over 30 years of experience and someone who leads a team of researchers who analyze government finances, it is difficult to stand by and watch a majority of state and local governments and the federal government make the same mistakes. It’s time for the governments at the federal, state, territory, and municipal level to budget for long-term obligations, like pensions, and bonds and produce transparent, timely, and accurate financial information. We’ve heard this story too many times before, and unfortunately, we will probably hear it again in more U.S. states and cities.
Weinberg is the founder and CEO of Truth in Accounting and a Certified Public Accountant. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
