Michigan scores 75 in financial transparency report

(The Center Square) – Michigan earned a 75 out of 100, according to a new study on state government transparency from financial watchdog Truth in Accounting (TIA). Michigan is ranked 31st in the nation and seventh in the Midwest.

Twenty-two states earned a distinction this year for providing the public with transparent information about their government’s fiscal health, but Michigan isn’t one of them.

The watchdog’s Financial Transparency Score report analyzes state annual financial reports nationwide and measures them against widely accepted best practices from the private sector. This report is based on fiscal year 2020, which includes the onset of the pandemic and the most recent reports available for all 50 states.

Overall the 50 states’ transparency scores worsened compared to the previous years. Several states faced audit issues due to challenges with the CARES Act and unemployment insurance. Only 37 states’ financial reports received clean audit opinions, down 10 states from last year.

Other factors preventing states from receiving better scores include timeliness in reporting and the use of outdated pension information. No states published their reports within 100 days of their fiscal year-end, yet most corporate financial reports are issued within 45 days of their respective fiscal year ends.

“State governments have historically struggled to provide the public with meaningful information about their financial health,” TIA founder and CEO Sheila Weinberg said in a statement. “We have seen reporting efforts hampered in the past by conflicts of interest, out-of-date information, and tardy publication. The COVID-19 pandemic further hindered state governments’ ability to be transparent.”

For example, state and local governments have long downplayed the true scale of looming retirement benefit obligations, including pensions and retiree health care, by using creative accounting methods to omit figures from their balance sheets. In fiscal year (FY) 2018, however, the most recent fiscal year, state and local governments that use Generally Accepted Accounting Principles were required to report their unfunded liabilities related to other post-employment benefits (OPEB).

TIA’s Financial Transparency Score Report measures the states on a 0-100 scoring scale, with a perfect score of 100 signifying an ideal timely, truthful, and transparent performance. While no state earned a perfect score in this year’s analysis, TIA regards a score of 80 or above as noteworthy. The top 10 scoring states this year include:

Utah: 88 pointsMaryland: 87 pointsSouth Dakota: 87 pointsNew Hampshire: 86 pointsMaine: 86 pointsVirginia: 85 pointsWashington: 84 pointsHawaii: 84 pointsTennessee: 84 pointsWest Virginia: 84 points

In the Midwest, the ranking is as follows:

South Dakota: 87 pointsIndiana and Kansas tie: 82 pointsWisconsin: 80 pointsNorth Dakota: 79Minnesota: 76Michigan: 75Missouri: 68Ohio: 63Illinois: 56Nebraska: 55

TIA recommended transparency improvements for state governments’ future financial reports to earn a 100:

Receive a clean opinion from an independent auditor (This criterion also applies to the annual report of the state government’s largest pension plan.)Include a net position not distorted by misleading and confusing deferred itemsReport all retirement liabilities on its balance sheet (statement of net position)Be published within 100 days of the government’s fiscal year-endBe easily accessible onlineBe searchable with useful links from the table of contents and bookmarksBe audited by an independent auditor who is not an employee of the government (This criterion also applies to the annual report of the state government’s largest pension plan.)Measure the net pension liability using the same date as the annual report

Maryland is the only state that accurately reported its 2018 pension numbers; all of the other pension figures were marred by different valuation dates or outdated numbers. These factors, combined with the shortcomings mentioned above, mean that all 50 states were unable to accurately report their true financial condition. State finance officials should remedy these shortcomings in their future public reports.

The significance of these governmental actions can be illustrated with an analogy to the private sector: imagine if a large corporation directed its own audits, ignored reporting deadlines, and shortchanged promised employee retirement funds. Unfortunately, federal, state, and local governments often disregard the expected financial standards that apply to private sector entities within their jurisdictions.

Disclaimer: This content is distributed by The Center Square