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Transparency group warns of ‘zombie’ governments

Illinois Watchdog.Org

Thursday, October 25, 2018  |  Article  |  By Cole Lauterbach

Local Government (60)
A transparency group is using the season to warn about risky practices employed by what the group calls "zombie governments."

Truth in Accounting has updated information that shows some states, Illinois included, have such large amounts of hidden debt that they’re essentially insolvent. The term “zombie bank” comes from the savings and loan crisis of the 1980s. It was used to describe a bank that was broke but still operating thanks to accounting gimmicks and government support.

Bill Bergman, director of research with Truth in Accounting, said some states and units of local government are effectively insolvent, but able to make themselves appear “alive” using similar accounting tricks.

“We have many of them,” he said. “Especially in Illinois.”

Truth in Accounting qualifies a state as a “zombie” using measurements of taxpayer burden, timeliness of filing financial reports and their trend of doing so, transparency of reports and a 10-year average of debt to revenue.

Bergman said the key is often “hidden debt,” like pension obligations that have not historically been included in financial reports.

These government entities have the incentive to take what money they can and gamble on high-risk, high-return investments, potentially making things worse, Bergman said.

“The riskier asset classes have grown increasingly popular in pension plans including troubled plans in part because of the incentives to take higher risk,” he said.

The most common form of state and local debt is unfunded pensions, to which the state of Illinois has more than $130 billion.