If you’re looking for truth in accounting, don’t come to Philadelphia.
That’s the finding of a government watchdog group that rates American cities on their honesty and transparency in public accounting. They examined the accounting practices of 75 major municipalities and rated the City of Brotherly Love number 70.
Truth in Accounting (TIA) released its latest report, “Financial State of the Cities 2023” earlier this month. New York is the worst city, but Boston and Philadelphia also received failing grades.
Many cities mislead taxpayers, TIA watchdogs say.
“What we find is they take their books and they hide the true cost of government by not putting all their compensation costs in their budgets,” Sheila Weinberg, CPA and TIA founder, told Delaware Valley Journal. And these cities “could struggle to maintain current levels of government services and benefits,” TIA said.
Philadelphia’s financial problems “stem mostly from unfunded retirement obligations that have accumulated over the years.”
TIA assigned a grade of A to F for each city, based on the average taxpayer obligation. A or B means each taxpayer has a surplus of between $1 to $10,000 or more. C to F means there is an average taxpayer burden. Boston was given a D; Philadelphia an F.
“Philadelphia’s elected officials have repeatedly made financial decisions that left the city with a debt burden of $11.9 billion. That burden came to $21,800 for every city taxpayer,” the report said.
“The most common accounting trick cities use is to hide employee benefits such as health care, life insurance and pensions, from the current budgeting process by not acknowledging they exist.
“Cities become obligated to pay for these benefits as employees earn them. Although these retirement benefits will not be paid until the employees retire, they still represent current compensation costs because they were earned and incurred throughout the employees’ tenure,” TIA reports.
The study examined the cities’ spending practices and unreported liabilities. Fifty municipalities didn’t have enough money to pay all bills at the end of the last fiscal year even though they presented themselves as having balanced budgets.
“To balance their budgets, elected officials did not include the full/entire cost of the government in their budget calculations and pushed costs onto future taxpayers” according to the report.
Philadelphia city officials declined to respond to requests for comment. Rebecca Rhynhart, the former city controller now running for mayor, also did not respond to requests for comment.
Cities, unlike the federal government, must balance budgets, yet many don’t, the study said. It cited accounting gimmicks: Inflating revenue assumptions. Counting borrowed money as income. Delaying payment of current bills until the start of the next fiscal year.
Weinberg contends most cities only pay debts on a “pay as you go basis.” The near-term problem, she adds, is sometimes disguised by bull markets as well as recent federal government COVID payments. She cautioned that a bull market can make a city’s bottom line seem healthy but “in a bear market it will be in a lot of trouble.” Cities, she adds, should lower investment return expectations.
Philadelphia’s money woes eased in 2021 when the stock market was up some 29 percent, but TIA warns long term problems persist.
“Even with inflated pension asset values, the city had set aside only 63 cents for every dollar of promised pension benefits and 12 cents for every dollar of promised retiree health care benefits,” the report said.
Philadelphia could potentially face the same problem as New York City, when the Big Apple skirted bankruptcy in the 1970s, according to Weinberg.
Time Magazine wrote on August 11, 1975, “in the time-honored fashion of New York politicians, Beame (Abe Beame was the mayor of New York City) had put off dealing with the crisis in the vain hope that it would somehow go away.”
William Simon, a former Treasury Secretary in the book “A Time for Truth,” wrote, “New York was spending in excess of three times more per capita than any other city with a population of more than one million.”
While Philadelphia is bad, New York is worse. Today, New York City taxpayers are facing the biggest bill of any major U.S. city.
“New York City had a taxpayer burden of $56,900, earning it an F grade from Truth in Accounting.”
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