A new report from State Budget Solutions finds that states’ failure to fix their pension system means big trouble for taxpayers—especially retirees and Baby Boomers.
According to SBS’ Joe Luppino-Esposito:
State Budget Solutions' latest research reveals that state public pension plans are underfunded by $4.7 trillion, up from $4.1 trillion in 2013. Overall, the combined plans' funded status has dipped three percentage points to 36%. Split among all Americans, the unfunded liability is over $15,000 per person.
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. Furthermore, 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. …
California carries the largest unfunded liability in total dollars at $754 billion, followed by Illinois at $331.6 billion and New York with $307.9 billion. …
This does not mean much, however, as the largest states with the largest government employee workforce will likely always lead the list, even if unfunded liabilities were not at their current crisis levels. The funded ratio, however, is a better indicator of the health of the pension plans. Illinois, with only 22% of its liabilities met, is the worst, followed by Connecticut at 23% and Kentucky at 24%.
The most shocking way to appreciate just how serious the public pension status quo is, according to Luppino-Esposito, is to see the per capita liability by state. Alaska tops the list at nearly $41,000 per person, followed by Illinois, at nearly $27,000, and Ohio, at more than $25,000. State Budget Solutions has provided some depserately-needed transparency to enlighten the public policy debate. As Investor’s Business Daily sums up:
A big problem is underfunded pensions aren't included in state budgets right now. So they're largely invisible. …
The magnitude of the red ink has been carefully hidden by faulty and in some cases downright dishonest accounting. Many states routinely overestimate returns on pension investments, while underestimating the payouts. The State Budget Solutions report bluntly calls this a "betrayal" of both retirees and taxpayers.
As we noted, this may be a big reason effective GOP governors like Scott Walker in Wisconsin and John Kasich in Ohio and fiscally conservative newcomers like Bruce Rauner in Illinois were handed the reins of power.
For them and other newly-elected officials, keeping those reins will largely depend on whether they keep their promises to tackle this problem head on.