Letter to the editors.(Letter to the Editor)

I [am writing about] the Government Finance Review article by Jeff McElravy and Leo Yonghong Liang entitled "Debt Capacity Analysis for Local Governments" (October 2004, pages 41-46). Their capacity analysis relies on "peer group" mean or median benchmarks. Using various debt ratio analyses, this article claims, "Once the jurisdiction under analysis has reached the peer group mean, its debt levels are consistent with the average jurisdiction, and are therefore affordable." The article goes on to state, "Almost all of the data can be found in comprehensive annual financial reports."

The glaring omission of this article is its failure to include debt buried in the required supplemental information section of those comprehensive annual financial reports, namely pension and post-retirement benefit unfunded liabilities, as general debt for the purposes of this "capacity analysis." This informal, off balance sheet actuarial debt is sometimes referred to as "moral obligations." This is ironic since many state and local governments are immorally funding these debts by mortgaging the future of unborn taxpayers in the most heinous form of taxation without representation this country has ever known.

GFOA can analyze and rationalize state and local government debt any way it wants, but that will not necessarily mean new or even existing debt is "affordable." Future facts will show that it is our generation's intentional overlooking of these unfunded pensions and post-retirement benefit liabilities that will bury our grandchildren financially.

Richard H. Skiba, Jr.

Retired GFOA Member

Palatine, Illinois

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