~ At the end of the fiscal year, 28 states did not have enough money to pay all their bills.
~ Overall, only 71% of promised pension benefits have been funded.
~ Overall, only 11% of promised retiree health care benefits have been funded.
Five top ranked states:
Alaska
North Dakota
Wyoming
Utah
Tennessee
Bottom five states:
46. Hawaii
47. Massachusetts
48. Illinois
49. Connecticut
50. New Jersey
“The percentage you’re paying is too high priced
While you’re living beyond all your means”
~ Steve Winwood & Jim Capaldi, ‘The Low Spark of High Heeled Boys’
Note that virtually every Fortune 500 company doesn’t provide financial reserves for retiree health care. (Every annual report I’ve read in the past 20 years includes some version of this footnote: “While we currently offer health benefits for retired employees, we’ve made no promises of doing so in the future.”) The fact that the states have collectively reserved for 11% of the expected cost of retiree health care is pretty impressive, compared to private industry.
Unlimited price gouging in health care and lack of price competition will be the death of us all.
I read an article today saying that 58% of the US population has an income below 400% of the Federal Poverty Level, making them eligible for charity care at a non-profit hospital. However, just because you’re eligible, doesn’t mean you’ll get it. At many hospitals, funding for excessive Executive Compensation far exceeds what’s spent on the IRS mandated charity care.
Yes and no. About 80% of large corporations haven’t made any promises and 20% offer health retirement benefits while the number is three times that for public employees. At the same time it appears the states at least won’t be able to keep their promises to 90% of their employees.
The factory buildout enriches the nation. Making funding our liabilities a much easier lift.
Going against the buildout would destroy our nation. Cutting budgets right now is just ignorant politics. We tried that from 1981 to 2020 and all we saw was our industrial base go to China because the powers that be mismanaged our economy with supply-side economics. So bad was it that no one is suggesting it today. Instead pu$$y footing around with bad policy ideas rooted in supply-side economics…like giving the poor wealthy folks a tax cut.
Besides in the next ten years if not sooner we will have universal healthcare coverage. We want industrial advantages. We want a wealthier society. We are getting less interested in people shouting down important socialist needs. Taxes would come down with socialized medicine if you include your healthcare costs as part of your financial/tax burdens.
As I live in #5 I’ll just mention that “government services” around here suck. We have among the worst schools in the country, poor healthcare for people without means, etc. And I can lead you to hundreds of places where a minor accident with a guard rail will turn into a major one because you have vaulted over a cliff side without the benefit of, you know, a simple highway safety adornment.
Alaska shouldn’t even be on the list, given the gusher (pun intended) of oil revenue that enhances state coffers, a socialized benefit for all the residents, although if you framed it that way they’d surely recoil in horror.
Alaska says 85% of its general state revenue comes directly from oil extraction, certainly a wonderful way to fund the state. In Utah the Kennecott copper mine extracts 275,000 tons of copper, 400,000 ounces of gold, 4,000,000 ounces of silver and lots of other precious metals, all into the hands of private industry every year. Yes, they pay some taxes, but a tiny fraction compared to the gusher of money provided Alaska by direct payment for the oil in the ground.
Noting that both Alaska and Utah make it into the top five, so there is more than one way to be fiscally responsible. And I would guess, more than one way to overpromise benefits.
The OP link says future liabilities should be called bills. To me, bills are invoices that need paying soon, maybe within 60 days. Future liabilities should be called long-term liabilities. A more complicated phrase and less alarming than calling them bills, but calculating future liabilities is difficult and so deserves a somewhat complicated name.
I looked at the numbers in some detail, but did not find anything alarming. Looks like unfunded pension benefits increased since 2003, but decreased since 2016. Debt has decreased. Unfunded retiree health care promises might be too uncertain to forecast.
I don’t see much macroeconomic impact or investment opportunity in this. Maybe Muni Bonds are somehow affected, but they mostly have very high credit ratings. I suppose states going bankrupt or not paying pensions could have an impact, but these events seem unlikely. Are there any signs of these black swans appearing? There could be problems if growth stalls for a long time. But personal income was up over 5% in the past year, and so there are no signs of growth stalling.
Pew found that the states collectively have [percent of total personal income]:
6.8% in unfunded pension benefits in 2019.
4.0% in unfunded retiree health care promises in 2016.
2.7% for debt in 2020.
total is 13.5% of total personal income
For example, the OP article writes:
“Massachusetts needed $73.2 billion more than it had to pay its bills, or $26,700 per taxpayer, at the end of fiscal year 2022. Almost half of Massachusetts’ debt comes from unfunded pension benefits, which totaled $43.2 billion.”
Converting these numbers to per person: about $73B / 7 million people = $10,500.
Personal income in Massachusetts increased 5.6% from $83,500 in 2022 to $88,000 in 2023 per capita. The OP article’s long-term liabilities is about 12% of personal income in Massachusetts.
Pew provides the following data for Massachusetts [percent of state personal income]:
Debt was steady around 8% between 2003 and 2020.
Unfunded pension costs increased from about 4% in 2003 to about 8% in 2019.
Unfunded retiree health care costs were steady at about 4% between 2010 and 2016.
The OP article and Pew have roughly the same numbers: Unfunded long-term liabilities are about 12% of personal income in Massachusetts. Worth keeping an eye on, but to me, not alarming. Not a problem if growth continues above 5%. Might be a problem if unfunded pension costs continue to increase.
Pew provides the following data for the states collectively [percent of state personal income]:
Debt decreased from about 3.5% in 2003 to about 3.0% in 2020.
Unfunded pension costs increased from about 2.5% in 2003 to about 8% in 2019.
Unfunded retiree health care costs decreased from about 5% in 2010 to about 4% in 2016.
(I used trend lines to smooth this data, and so specific data points might differ.)
Unfunded pension costs for the states collectively have been declining recently. The peak was 8.4% in 2016, with a decline to 6.8% in 2019. So, again worth keeping an eye on, but to me, not alarming.
I’m not sure why the Pew data does not update unfunded retiree health care beyond 2016. Maybe because it is dependent on Federal law that is uncertain. Making future projections requires assumptions, and maybe the needed assumptions are difficult to find with confidence. Or maybe that data set has a long lag for some reason.
==== links ====
How Congress Manufactured a Postal Crisis — And How to Fix it, July 15, 2019
“In 2006, Congress passed a law that imposed extraordinary costs on the U.S. Postal Service. The Postal Accountability and Enhancement Act (PAEA) required the USPS to create a $72 billion fund to pay for the cost of its post-retirement health care costs, 75 years into the future. This burden applies to no other federal agency or private corporation.”
Fiscal 50: State Trends and Analysis, Updated: December 7, 2023
“Unfunded pension obligations are most states’ largest long-term liabilities and have consistently outranked debt and retiree health care as a challenge for states’ budgets. According to the most recent available data, states collectively reported $1.25 trillion in unfunded pension benefits in fiscal year 2019, the equivalent of 6.8% of total personal income. Unfunded retiree health care promises stood at 4% of all states’ personal income in 2016, and debt claimed 2.7% of total personal income in 2020. If not properly managed, these liabilities can limit future budget flexibility and raise borrowing costs.”
I’d guess that there would be at least a loose correlation between unfunded liabilities and general state credit ratings (and the costs for the states to borrow money).
2021
S&P Global
1 Alaska AA-
2 North Dakota AA+
3 Wyoming AA
4 Utah AAA
5 Tennessee AAA
46 Hawaii AA+
47 Massachusetts AA
48 Illinois BBB+
49 Connecticut A
50 New Jersey BBB+
That is an informative link. In one easy to view color-coded chart it shows the credit ratings of all 50 states from 2001 to 2021. Many have improved. There are only a few BBB ratings: California in 2003, Illinois since 2016, New Jersey since 2020. (Connecticut and Kentucky have declined from AA to A.) California has improved to AA-.
So state government financial conditions might be getting worse in New Jersey and Illinois.
Anyone notice that the top four states have very low population density? Suspect it is easy to be fiscally responsible when there is little to spend money on.
Conversely these states have a lot of people per square mile. Suspect they have a much more complicated set of budgetary responsibilities than states where few seem to want to live.
In other words, it looks to me that the “Financial state of the states” is determined more by population density than politics. Is that the point the OP is trying to make?
It could certainly be easier to govern a small entity than a large one. Whatever the population or the density, however, it is a long-term necessity to “balance the books”. And that is where politics enter the picture. Offering too many services/goodies for a state’s income/taxation level or not putting aside enough money to cover promises made to public employees are political decisions.
It occurs to me that the credit ratings of Illinois and New Jersey might be worse except for the perception that the Feds would bail out a state on the verge of bankruptcy. “Too big to fail.”
Across the US, state and local governments spent $616 per capita on highways and roads in 2020. Alaska spent the most per capita on highways and roads at $1,858 per person, followed by North Dakota ($1,549), Wyoming and South Dakota (both $1,366), and Vermont ($1,082). Arizona spent the least on highways and roads at $425 per person, followed by Tennessee ($427), Missouri ($449), South Carolina ($462), and Louisiana ($469).
Sure, but at least make an apples-to-apples comparison using a metric that actually supports the point you are trying to make. You are comparing sparsely populated rural states with densely populated urban ones using a metric from 2022-2023 that is essentially measuring the speed of recovery from the pandemic.
I mean comparing New Jersey with Wyoming for the solvency of their respective pension plans seems silly to me given that the classic eastern seaboard state of New Jersey is limited by a long history of pension commitments not found in the western frontier states like Wyoming.
It would be like concluding that New Jersey has a superior animal control system because they have a much smaller wolf problem than Wyoming.
Or that the North Dakota transportation department is superior to that of Connecticut because of the difference in traffic congestion.
Or that the metric of “number of tourists” means that Hawaii has a superior tourism program than Tennessee.
I looked at the Financial Report for Massachusetts. Looks like the unfunded liabilities are decreasing as a percent of personal income. I agree that unfunded liabilities are a potential problem for states, but the audited report shows they are at reasonable levels and that there is serious effort to keep unfunded liabilities under control, at least in Massachusetts.
Unfunded liabilities are not a problem for Massachusetts, and so I find it weird that the OP link finds otherwise. The OP link does not consider personal income, and I think that explains the different conclusions. Instead the OP link demands positive Net Position, and I disagree with this requirement in state finances.
The Pew data stops in 2019. More recent data can be found in the states’s financial reports. For example, the OP link says “Massachusetts’ financial condition improved in 2022, but the state still needed $73.2 billion to pay its bills.” This is close to the -$67B Net Position in the Comprehensive Financial Report. The Comprehensive Financial Report gives more details on how the Net Position is calculated: Unfunded (net) pension liability $35B, Unfunded health insurance benefits $15B.
2022 Massachusetts personal income was $590.7B (6.985 million population * $84,561).
Converted to percent of Massachusetts personal income:
Unfunded (net) pension liability 5.9% in 2022
Unfunded health insurance benefits 2.6% in 2022
Pew lists:
Unfunded (net) pension liability 7.9% in 2019
Unfunded health insurance benefits 3.7% in 2016
Massachusetts Office of the Comptroller 2022 Comprehensive Financial Report
“Net Position – The liabilities and deferred inflows of resources of the primary government exceeded its assets and deferred outflows of resources at the end of FY22 by $67.424 billion, a decrease in the net deficit of $8.374 billion from FY21, with the decrease in the net deficit due primarily to strong tax revenue growth, which resulted in a positive operating balance during the fiscal year”
“In the government-wide statements, the balance sheet has been organized into a ‘net position format.’ This format classifies all assets and liabilities as either short-term or long-term and then subtracts liabilities and deferred inflows of resources from assets and deferred outflows of resources to arrive at net position.”
“unfunded (net) pension liability (known as the “net pension liability”), which totaled $34.807 billion”
"unfunded non-pension retiree benefits (or OPEB, mostly health insurance benefits), which totaled $15.218 billion "
“The governmental activities’ net OPEB liability totaled $14.459 billion, plus deferrals of $2.942 billion, resulting in a reduction in net position of $17.401 billion.”
I looked at Texas State Pension info on the State Comptroller’s site:
This is the website from which I searched for pension info: Texas Transparency Reporting Tools
Funded Ratio ranges from 68.94% to 90.52%.
This is an increase from 2017, for most categories. IIRC!
It’s interesting to look at the ASSUMED rate of return (7% for four pension funds, I’m going to use 7% for this comment), and the reported ACTUAL rate of return.
ACTUAL rates of return:
1 year ranges from -1.6% to +25%! (negative for some!) Why such a broad spread?
3 year is positive across all pensions, and above the 7% assumed.
Range is 9.66% to 16.26%.
10 year is positive across all pensions, and above the 7% assumed.
Range is 8.3% to 10.22%.
30 year is positive for 3 pensions, and at 7.58% is above the 7% assumed.
4 pensions at N/A. (Does the amortization period explain the N/A?)
My conclusion, from this SHALLOW dive, is that TX is managing these funds ‘ok’. The funded ratio has been relatively stable for 10 years IIRC. And the Actual Rate of Return is exceeding the Assumed Rate of Return.
I don’t control any of this, so basically, I just ‘hold on to my hat and hope that I’m covered during my 8 second ride’.
ralph
The ASSUMED rates of return ranged from
6.75% (one fund) to 7% (four funds) to 7.5% (2 funds).
