Unlocking Financial Wisdom: Navigating America’s Fiscal Landscape

Why do so many people find themselves in financial turmoil? The same reason our states and our country are grappling with financial crises. It all boils down to a lack of understanding when it comes to the fundamentals of money. Money, in its essence, remains an enigma to many. Have you ever wondered why a 1964 quarter is worth a whopping $7, while a 1971 quarter merely fetches 30 cents? It’s a question that perplexes most, and it’s emblematic of our collective financial illiteracy.

But it doesn’t stop there. The repercussions of this financial ignorance extend beyond individuals to the very leaders we elect to govern our states. The sad truth is that we often choose leaders who, like us, lack a profound grasp of fiscal responsibility. So, the critical question looms: Which state will be the first to fall into financial ruin? And how will it affect those who reside there, invest there, or own property there? These are questions we must grapple with if we are to navigate the treacherous waters of our nation’s fiscal landscape.

In an era where people often seek comforting reaffirmation of their beliefs rather than the cold, hard truth, it’s time to confront reality. Let’s delve into the facts. An enlightening resource known as Truth and Accounting meticulously assesses the financial health of all 50 states. It doesn’t just stop at the surface; it peels back the layers to reveal unreported liabilities, including pensions and benefits. And what it uncovers is disconcerting. Despite our deep love for this great nation, most states lack the financial means to cover their expenses.

If we scrutinize the numbers, it becomes evident that the financial equation is far from balanced. Collectively, all 50 states bring in approximately $2 trillion in revenue and assets, yet their debts and unfunded retirement obligations amount to a staggering $2.9 trillion. The result? A yearly deficit of nearly $1 trillion. Now, think about it: if you were in dire financial straits and asked for a loan, would people willingly lend you money? Likely not. So, why are we not paying closer attention to our own states and federal government?

We hold the power to elect leaders who prioritize fiscal responsibility in our communities. It’s a duty we must embrace. Truth and Accounting ranks each state on a scale from ABCDF, shedding light on whether they have a taxpayer surplus or a taxpayer burden. The disparities are striking, with some states swimming in assets and others drowning in liabilities.

What’s intriguing is that almost every state, except Vermont, has a balanced budget requirement by law. Yet, the majority of them carry substantial debts. In fact, 28 states cannot even cover all their bills. The proof is in the report. Now, let’s examine the top five and bottom five states. Alaska tops the list, boasting nearly $80,000 per taxpayer in surplus, primarily thanks to its oil wealth. On the other end of the spectrum, we find New Jersey, needing a whopping $179 billion to settle its debts, with a tax burden of $53,600 per taxpayer. The gap between these two states is a staggering $133,600 per taxpayer. It’s a glaring testament to the stark contrast in fiscal management.

But it doesn’t end there. One of the most critical factors for real estate is the unfunded pension liabilities in each state. Nationally, most states only have 71 cents for every dollar of these obligations. The even more alarming issue is the unfunded post-employment benefit liabilities, where there’s a mere 11 cents per dollar. You might wonder why this information is pertinent. Well, these debts will come back to haunt real estate in the form of higher property taxes, one of the most substantial expenses in real estate.

Remarkably, no state has ever declared bankruptcy, with the exception of Arkansas in 1933. It’s been nearly 150 years since any state has defaulted on its debts. There’s no roadmap for what happens when a state goes bankrupt, as state bankruptcies are not permitted today. To change this, Congress would have to pass a law. Nevertheless, in 2017, Puerto Rico, a US territory, entered US bankruptcy court. The outcome, as with any bankruptcy, is a reduction in debt, including unfunded pensions and liabilities owed to everyday citizens like you and me.

So, why am I sharing all this information? It’s because these debts will inevitably become a concern for real estate down the line. These debts will be paid, and they will manifest as higher property taxes. Property tax is a substantial burden and we must be prepared for the impact.

When deciding where to move or where to invest, one of the key considerations should be the fiscal responsibility of the state in question. Which states prioritize building assets to cover their liabilities? Failing to do so could leave you on the hook for unfunded liabilities in the form of higher taxes. So, which state will be the first to succumb to financial ruin? I’d advise steering clear of New Jersey, Connecticut, Illinois, Massachusetts, and Hawaii, all of which have received an F grade on Truth and Accounting. As for the federal government, their reported debt stands at a staggering $161 trillion, far exceeding the $33 trillion publicly acknowledged. The disparity lies in unfunded liabilities, as we’ve discussed.

In A Nutshell . . .

Be informed on all aspect of a state you are considering in your move for retirement purposes. Reach out to brainstorm checking all potential costs as we show a side by side view.

Here are some hashtags to use: #FinancialWisdom #StateFinances #TaxationTrends #TheVolschTeam #InvestingInsights