How Many Billions of Dollars Do States Have In Long-Term Obligations?

WASHINGTON – States had $968 billion in unfunded pension benefits, $518 billion in outstanding public debt, and $587 billion of unfunded retiree health care and non-pension benefits in fiscal 2013, according to a report on States' Fiscal Health released by The Pew Charitable Trusts on Tuesday.

"Although states have decades to pay off these sums … these claims on future revenue can limit states' budget flexibility when the costs come due," officials wrote in the report. "Less money may be available to fund other priorities, such as health care for low-income Americans or education, or to cover unexpected needs. As part of a state's full financial picture, these liabilities can also affect credit ratings and borrowing costs."

Net tax-supported debt was the greatest cost in five states: Washington, Oregon, South Dakota, Wisconsin and Massachusetts. Unfunded retiree health care costs were highest in Alaska, Texas, North Carolina, Hawaii, New Jersey, New York, Delaware and Vermont. Among the three long-term obligations, unfunded pension cost was the largest in the remaining 37 states.

Hawaii, at 10.6% of personal income, had the highest debt levels in 2013, followed by Connecticut and Massachusetts, both at 8.8%. North Dakota, Wyoming and Nebraska experienced the lowest debt levels at 0.5%, 0.1%, and less than 0.1% of personal income, respectively.

Alaska's unfunded liabilities for both pensions, at 23.7% of personal income and retiree health care, at 26.2%, were the highest among the states. The state's total long-term obligations, including debt, amounted to more than half of all wages, salaries, business and investment income, and government-issued checks and benefits received by Alaska residents in 2013.

Hawaii, at 46.1% of personal income, had the second-largest total liabilities in fiscal 2013, followed by Illinois at 31.7%. The largest component of future costs in Hawaii was unfunded retiree health care; in Illinois it was unpaid pension costs.

Nebraska had no liabilities for retiree health care benefits, while Indiana and Oklahoma owed 0.1% or less of personal income.

In the report, Pew said fiscal challenges posed by the long-term obligations are dependent on a state's budget, economy and population. States with faster-growing economies or large reserve funds may find their obligations more manageable, it added.

States' unfunded pension costs, or the shortfall between government workers' benefits and savings used to meet these obligations, were the largest of the three long-term obligations and also had the biggest growth over the past decade.

The $968 billion in unfunded pension benefits was an increase from $915 billion in fiscal 2012. The $587 billion of unfunded retiree health care and non-pension benefits was an increase of $30 billion from the prior year. States' outstanding public debt dropped to $518 billion in 2013 from $757 billion in fiscal 2012, according to the analysis.

In terms of long-term trends, Pew reported 44 states' unfunded pension costs as a share of personal income grew from 2003 to 2013. Of the five states that experienced decreases over the decade, West Virginia had the largest drop at 5.9%.

Pew collected data reported and calculated by states using their own actuarial assumptions, cost methods and practices for smoothing gains and losses over time for the study. Pension and retiree health care data were based on states' fiscal years, while debt and state personal income were based on calendar years for the study. According to the report, 17 states had total liabilities greater than the national aggregate of 14.8%.

In April, Pew released an analysis of state-by-state long-term fiscal health, where it found that more than 20 states still collected less tax revenue than at pre-recession peaks, and determined 23 states' employment rates still trailed 2007 levels. That report took into account several fiscal, economic and demographic factors and how they influenced long term fiscal standing.

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