Colorado gets ‘C’ for financial health; Denver, Colorado Springs labeled ‘Sinkhole Cities’

Denver, Colorado

Colorado received a “C” grade in a recently released report produced by Truth in Accounting (TIA), a Chicago-based nonpartisan, nonprofit group that analyzes government financial data across the country.

Its second Financial State of the Cities report analyzed the fiscal health of the nation’s 75 most populous cities based on fiscal year 2016 comprehensive annual financial reports.

With No. 75 being the worst, and No. 1 being the least worst, Denver came in at 35, Colorado Springs at 27 and Aurora at 5. Denver and Colorado Springs were identified as one of the 64 listed as “Sinkhole Cities,” which lack the necessary funds to pay their bills.

Denver received a D grade, Colorado Springs a C.

Despite the grades, "Colorado is in relatively good financial shape, compared to basket cases like Illinois, Connecticut and New Jersey," Bill Bergman, TIA’s director of research, said. "And Aurora looks like a great example of a well-managed place, one that others can learn from."

The report’s analysis of Colorado states that “repeated decisions by state officials have left the state with a staggering debt burden of $7.7 billion.”

According to the most recent financial filings, if Coloradans were to pay off the state’s debt, each taxpayer would owe $4,000.

The report summarizes Colorado’s fiscal health: “These statistics are troubling, but what’s more troubling is that state government officials continue to obscure large amounts of retirement debt on their balance sheets, despite new rules to increase financial transparency. This skewed financial data gives state residents a false impression of their state’s overall financial health.”

Overall, the report reveals that Colorado’s government has $12.3 billion worth of assets, which is not enough to pay its bills totaling $20 billion. Contributing to its C grade are the grades of the three cities that made the list.

Denver is in the worst shape. Its $2.7 billion in assets won’t cover its $4 billion worth of bills, earning it a D.

The report points out that city government officials are not reporting “significant amounts of retirement debt” on their balance sheets even though new rules require them to “increase financial transparency.”

It summarizes Denver’s financial problems, which are “largely driven by entitlement obligations in the form of pension benefits. The city has $1.4 billion in unfunded pension promises and $118.9 million in unfunded retiree healthcare benefits. While Denver has promised these benefits, little money has been set aside to fund them.”

The city did report most of its pension debt, but not its retiree healthcare debt, reflecting a hidden debt of $154.2 million.

If Denver residents were to pay off the $1.2 billion shortfall, it would cost them each $5,000, the report calculates.

Colorado Springs fared better than Denver with a C grade. Its bills were less, although its assets still could not cover them ($1.5 billion in assets, $2 billion in bills). The city also did not report its retiree healthcare debt, amounting to $130.3 million. If Colorado Springs residents were to pay off their city’s debt, they each would owe $3,100.

In fiscal 2015, a new accounting rule was implemented that required the Colorado Springs government to report its pension debt. But, TIA found that the city excluded $98.2 million of this debt— because it used outdated pension data when preparing its 2016 financial statements. It also kept off $32.1 million from its balance sheet of retiree healthcare liabilities.

In fiscal 2018, a new accounting standard requires local governments to report these liabilities.

The silver lining is Aurora, which earned a B grade. It’s one of just 11 cities listed as a “Sunshine City,” because it has enough assets to pay its bills. The report notes that its taxpayer surplus is $1,700.

Nationwide, the report found that “64 of the 75 most populous U.S. cities do not have enough money available to pay all of their bills. The total amount of combined municipal unfunded debt of cities analyzed in this report stands at a staggering $335.4 billion. Of that, unfunded pension liabilities account for $210.7 billion and retiree healthcare debt another $119.5 billion.”

None of the cities analyzed received an A grade. Eleven earned a B grade in the assessment of their city’s “Taxpayer Surplus.” Taxpayer Burden grading varied: 23 cities earned a C grade; 34 a D, and seven an F grade. It also states that TIA could not grade two of the most populous cities – Newark and Jersey City in New Jersey – "because they do not issue annual financial reports that follow generally accepted accounting principles, or GAAP.”

The Colorado governor’s office referred to the cities of Denver and Colorado Springs for comment. The mayors’ offices in Denver and Colorado Springs did not respond to requests for comment.

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