Pensions, OPEB rank as states' biggest problem

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Nineteen states face steep legacy-cost burdens, according to a study the Volcker Alliance released Thursday.

Texas and Virginia were among nine states receiving the lowest grade of D-minus for how they handle retirement costs in the report, titled "Truth and Integrity in State Budgeting: What is the Reality?"

Ten others received D grades.

“By far, in financial terms, this is the biggest issue — pensions and OPEB," Volcker Alliance chairman and former Federal Reserve Chairman Paul Volcker said while releasing the report during a luncheon at Hunter College's Roosevelt House in New York.

"It’s hard to see how some of the states are going to escape major problems in pensions and other benefits they’ve promised. You’re talking about trillions of dollars, no question about it."

Also receiving D-Minus under legacy costs were Hawaii, Illinois, Kansas, Massachusetts, New Jersey, Pennsylvania and Wyoming.

The report covers all 50 states over fiscal years of 2015 through 2017. The Volcker Alliance focuses on five critical areas that explain methods used to achieve budgetary balance, and how states disclose budgets and other financial information to the public.

States received grades of A to D-minus for procedures in estimating revenues and expenditures; using one-time actions to balance budgets; adequately funding their public worker retirement and other post-employment benefits; overseeing and using rainy day funds and other fiscal reserves; and disclosing budget and related financial information.

In addition to assigning grades, the Volcker Alliance proposes best- budgeting practices for policymakers.

"The fiscal pressure is not likely to disappear anytime soon," said the report. "The Volcker Alliance’s mission in grading states is to highlight those with practices that should be followed nationwide as much as it is to criticize those that fall short."

Volcker Alliance commenced this study last year, its largest project since its founding in 2013.

Nine states received top grades of A for forecasting. They are Connecticut, Florida, Hawaii, Maryland, New York, Rhode Island,
South Carolina, Virginia and Washington.

Only California and Alaska received As for transparency.

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Budgets Public pensions William Glasgall Volcker Alliance New York