State liabilities reach an incredible unfunded liability of $4.73 trillion

Tennessee is lowest figure

 

By Dwight L. Schwab, Jr.

A report from State Budget Solutions finds that state-level public pension plans are underfunded by a massive $4.73 trillion this year. That is an amount equal to more than $15,000 for each and every American.

Joe Luppino-Esposito, author of the “Promises Made, Promises Broken 2014” reports, “This spells trouble for the millions of baby boomers who are quickly approaching retirement age and expect to collect the pensions promised to them by government officials.”

He continues, “State taxpayers who are not government employees will also feel the pinch, which could result in reduced government services as larger and larger portions of the states’ budgets must be allocated to cover the public pension shortfall.”

States carrying the heaviest burden include California, with the largest unfunded liability at $754 billion, followed by Illinois ($331 billion), New York ($307 billion), Texas ($296 billion) and Ohio ($289 billion).

The figures can be misleading. A better indicator of pension plan health is the funding ratio, which compares assets to liabilities. Using that tract, the Illinois pension plan is in worst shape, with a funding ratio of just 22 percent. Its assets of $95 billion or about 22 percent of its liabilities of $426.6 billion.

Other states with lower ratios include Connecticut (23 percent), Kentucky (24 percent), Alaska (25 percent), and Mississippi (27 percent). Ironically, under Gov. Scott Walker, the well funded state is Wisconsin, with a funding ratio of 67 percent.

Based on a per capita basis, Alaska has an unfunded liability of $40,639 for each resident. Illinois has a liability of $25,740 per person, followed by Ohio ($25,028), Connecticut ($24,080), and New Jersey ($22,491). The lowest figure is in Tennessee, $6,500.

Luppino-Esposito asserts that one reason for the huge unfunded liability numbers is that officials rely on overly optimistic returns on the investment of assets. States are often guilty of not making the necessary annual contributions to the pension funds at all.

The situation with many states is desperate. The report states “State Budget Solutions found that in recent years several states have reduced the annual required contribution to the pension funds, or just skipped the payments altogether.”

New Jersey is the latest state to pull off this budget gimmick, reducing this year’s payment by a whopping $4.2 billion as a way of balancing the state’s budget. Not a good figure for its Republican governor, Chris Christie, considering a run for president in 2016.

For many states, the problem is becoming unmanageable for the long run. It will require the cooperation of all state agencies and both political parties working together.

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