Using Financial Statements to Provide Evidence on the Fiscal Sustainability of the States

• In Event: Governmental Financial Reporting

Abstract

We use states’ accrual basis financial statements to measure the extent to which states have
shifted payment of past costs to future periods. Our primary results suggest that 40 states have
shifted payment of past costs to future periods, with the median shifted cost being $6.7 billion
per state or $5,230 per household. Sensitivity analysis suggests that 48 states have shifted a
median cost of $20.7 billion per state or $16,200 per household.

If these costs are greater than the amounts by which government officials are willing to increase
tax revenues (because of political reasons), or greater than what future taxpayers are able to pay, then the state’s level of goods and services is not sustainable. These bounded estimates
contribute to the policy debate on state finances by quantifying the costs that states have already
shifted to future taxpayers.

Authors

• Terry Keith Patton, Midwestern State University

• Elizabeth Plummer, Texas Christian University