Truth in Accounting: Total National Debt at Least $74 Trillion

Do you think your household budget is balanced if you spend more than you earn by using credit card debt?  If you do, then you think like the City of Chicago’s government leaders.

Each year the City of Chicago releases its annual budget. City leaders regularly claim they operate under a balanced budget requirement, and they cite state law. But if state law has long required the City of Chicago to maintain a balanced budget, why has the city’s debt risen dramatically?

Part of the clue lies in the city’s government leaders choosing to include borrowed money to “balance” the city’s budget. But what’s happening behind the scenes is even more important. Chicago and other financially troubled municipalities have accumulated massive debts outside of the official financial statements, enabled by government accounting standards that have long left retirement benefit promises out of the equation.

This was the gist of the message delivered earlier in October in a seminar held at CivicLab in Chicago’s West Loop. The seminar was led by Sheila Weinberg, CEO and founder of the Institute for Truth in Accounting, a nonprofit organization dedicated to promoting truthful, transparent and timely government financial reporting.

The $17 trillion official national debt may sound like a lot of money, and it is, but it pales in comparison when considering that adding unreported debt leads the total to run at least $74 trillion in the red.
Truth in Accounting
Weinberg opened the discussion with related observations on federal government accounting, in light of the national debt ceiling debate. She asked seminar participants if they believe the government owes senior citizens the Social Security and Medicare benefits they have been promised, and if military veterans are owed the benefits they have been promised.

All participants answered in the affirmative, which leads to a basic conclusion that the “official” government debt subject to a transportable “ceiling” massively understates the real debt our federal government has taken on. The $17 trillion official national debt may sound like a lot of money, and it is, but it pales in comparison when considering that adding unreported debt leads the total to run at least $74 trillion in the red.

State and local governments have similar issues, including the City of Chicago. A recent study of 518 Cook County taxing districts co-written by Weinberg and John Nothdurft of The Heartland Institute finds a combined “financial burden” of almost $34 billion, once official government reports are adjusted for off-balance sheet debts – even after considering the assets those governments have to pay their bills.

How did Chicago residents end up in this situation, despite having leaders who regularly “balance their budgets?” Weinberg calls the main reason “political math.” “It all depends on how you count,” she says. She described how unfunded deferred compensation can provide short-run successes in a loyal government workforce, without current costs required to be paid by taxpayers. Growing debt fills the gap, even with “balanced budgets,” as liabilities rise outside the accounting statements provided to citizens.

Weinberg painted a picture of contrast between the raucous public debate over related issues in Wisconsin in recent years, and the relatively placid calm (on the surface) in Illinois – even though unfunded liabilities in Wisconsin are ‘basically a rounding error’ when comparing them to Illinois. Wisconsin state management has done a much better job of funding growth in real liabilities with current real resources, according to Weinberg, leading to a real current impact for taxpayers. Illinois, by contrast, has historically deflected much of financial burden away from current citizens and taxpayers. Accounting tricks and dishonest budgeting and reporting allowed the pile to accumulate. (Truth in Accounting’s estimates for all the states are available in State Data Lab, along with a variety of relevant economic and demographic context for state government finances)

Weinberg warned the day of reckoning is near. The sooner we get truthful accounting from government, the better the solution will be, she said. Weinberg’s conclusion was in keeping with the mission of the CivicLab, a unique facility and nonprofit organization dedicated to civic education and engagement. Weinberg urged citizens to educate themselves and demand “FACT-Based Budgeting,” (Full Accrual Calculations and Techniques) and truth from government and the news media.

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