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August 28, 2012 at 10:34 AM
State budget gaps have shrunk by half compared to the previous year, yet the mountain of debt burdening the states has barely budged—indicating a systemic crisis fueled by unfunded liabilities including rising pension and health care costs for retired state workers.
The grim projections were released Tuesday in the third annual State Debt Report from State Budget Solutions (SBS), a nonpartisan budget reform organization that compiles data on budget trends across the 50 states. In this year’s report, the debt monitoring group tallies the states’ debt at $4.19 trillion, little changed from last year’s $4.24 trillion.
Most of that debt stems from unfunded pension liabilities, which total $2.8 trillion. In its report, State Budget Solutions acknowledges its pension liabilities total is significantly higher than the $760 billion figure calculated by the Pew Center for the States, but says the Pew Center uses the states’ own calculation methods, which SBS says masks the true extend of states’ unfunded liabilities.
In contrast, SBS says its emphasis on “reality-based budgeting” provides “a realistic view of the money owed to public pension systems as a result of years of skipped payments, borrowed funds, and inaccurate discount rate assumptions.”
Last month, the California Public Employees’ Retirement System (CalPERS) stunned Wall Street with the announcement of a 1% return for its 2012 fiscal year, far short of its 7.5% return assumptions, thus requiring increased state and local contributions to make up the pension shortfall.
California once again topped the list of debt-plagued states with nearly $628 billion in debt, or more than twice the shortfalls of the next two most indebted states, New York ($300 billion) and Texas ($287 billion). New Jersey ($282 billion) and Illinois ($271 billion) rounded out the list of top five states with the highest debt.
Vermont had the least state debt ($5.8 billion), followed by North Dakota ($6.1 billion), South Dakota ($6.5 billion), Wyoming ($6.9 billion) and Nebraska ($7.8 billion).
Aside from pension liabilities, which account for nearly two-thirds of state indebtedness, the next two largest sources of state debt each contribute about $630 billion, adding up to nearly one-third of state debt.
