Accounting Methodology

Researchers at Truth in Accounting™ (TIA™) employ a comprehensive methodology to assess the integrity of government finances. This methodology involves a meticulous comparison of all bills, including those associated with retirement systems, against the entirety of a government's assets that can be utilized to fulfill these obligations.

Former U.S. Comptroller General David Walker says, “While other organizations have compared the states’ unfunded retirement liabilities, only [Truth in Accounting] has determined the overall financial condition of every state.” 

TIA™ begins its analysis by identifying all assets, including capital assets (e.g., buildings, roads, bridges, parks, etc.) and other assets (e.g., cash, investments, and money in fund accounts). Some of these assets are available to pay a government's bills or liabilities, while others are restricted by law or contract. The restricted assets are removed from the total, as are capital assets, because they cannot be easily converted to cash. The result is a calculation of a government's Assets Available to Pay Bills.

TIA™ then identifies Total Bills, which include liabilities disclosed in the government's financial report, such as accounts payable, bonded indebtedness (bonds), and pension and Other Post-Employment Benefit (OPEB) obligations found in the retirement systems’ Comprehensive Annual Financial Reports (CAFRs). Since we removed capital assets from our computation of Assets Available to Pay Bills, we also subtract from Total Bills the amount of debt related to the financing of the capital assets. Only liabilities incurred to date are included in Total Bills, and special care is taken to calculate the government’s share of multiemployer and cost-sharing retirement plans. TIA™ calculates Money Needed (or Available) to Pay Bills by subtracting the Total Bills from the Assets Available to Pay Bills.

The bottom line is expressed as Taxpayer Burden or Surplus. This represents the bills the government has elected to fund as they come due on a per-taxpayer basis and in today’s value.

TIA's analysis clearly indicates that the majority of governments have made promises that surpass their financial capacity. By concealing the incurred costs of government retiree benefits off-balance sheet, most governments are failing to comply with the principles of balanced budget requirements. The approach described above aligns more closely with Generally Accepted Accounting Principles (GAAP), which entail including the cost of long-term liabilities in financial reporting.

For more information on TIA’s™ methodology, including details on the process used to calculate the government’s share of multi-employer pension and Other Post-Employment Benefit (OPEB) plans, click here.