By: Mark Glennon*
“Net position” is the government accounting term used for a balance sheet snapshot.
The chart shows net positions, in billions, for each of the last ten year ends, taken from the most recent CAFR, the Comprehensive Annual Financial Report, for Illinois, the City of Chicago (which are plotted on the right axis) and for Chicago’s two largest overlapping units of government, Cook County and the Chicago Public School District (which are plotted on the left).
Some of the drop in net position results from changes in pension assumptions and restatements resulting from changes in accounting standards. In particular, the drops from 2014 to 2015 are due largely to restatements based on new government accounting standards for pensions.
However, that doesn’t mean those losses should be disregarded. New assumptions and standards represent an admission that prior ones weren’t fairly presenting financial condition. Had the new standards been in place earlier, the losses would only have been pushed back into earlier years.
Aside from the terrifying trend, the chart also exposes the silliness of “balanced budget” claims. All these units of government, to my knowledge, operated under budgets they claimed were balanced in each of these years (except the State of Illinois for 2016, during which it had no budget).
I asked Bill Bergman of Truth in Accounting for his reaction to the chart:
It’s fun, or sad and scary, or all of the above, to consider what this means for a citizen of the City of Chicago. That person is not only a citizen of the City of Chicago, but is also impacted by the financials of the Chicago Public Schools, Cook County, and the State of Illinois. Adding things up, back in 2007, he was being told that things were basically flat. The latest aggregate net position came to over $250 billion — negative. That’s a lot of dough.
Importantly, he added, “The accounting changes aren’t over. We have yet to recognize retiree health care and other retirement benefits on the balance sheet, for example. We have a lot of ditch-digging ahead of us.”
Here’s a promise: The trend will continue. Recent tax increases will have little impact. Only drastic policy reversals, which aren’t in the cards with this General Assembly, would turn this around.
*Mark Glennon is founder of Wirepoints. Opinions expressed are his own.