The third-highest
debtor state is Connecticut,
at 22.9%.
By Meep – March 30, 2012
http://www.conservativecommune.com/2012/03/public-pensions-and-state-debt-just-how-screwed-are-we/
Let’s ignore
the hulking problems of Medicare, Social Security, and all those outstanding U.S. Treasuries
that someone is expecting to get paid for some day.
Okay? Washed
it out of your mind?
Let’s just
take a look at one piece of the debt puzzle—unfunded public pensions and state
debt.
Here’s a table [PDF] from credit
rating agency Fitch, which has come up with its own measurement of the value of
the unfunded portion of the already accrued pension liabilities. It’s trying to
put states on a comparable basis.
The
adjustment Fitch makes is assuming the “real” discount rate for the pensions is
7%, and that for every percentage point the discount rate assumption is away
from 7%, it has an 11% effect on the total liability value. This is just an
estimate—and is far less harsh than valuations made by people like Rauh and Novy-Marx, who try discounting at much lower
rates. Keep in mind that 8% has been a popular discount rate for quite some
time, and we’ve seen some public plans have even higher discount rates.
I’m going to
point out some select numbers for you, mkay?
Let’s take .
. . oh, Illinois.
The poster state for bad public pension behavior.
The Illinois Senate GOP posted their own focus on Illinois.
(And, sorry about the video of the Illinois
Senate floor live video automatically playing. It’s not my site.)
Illinois state government
has the second-highest debt in the nation, as a percentage of residents’
income, according to a new report by Fitch Ratings.
Illinois’ public debt
represents 25% of Illinois
residents’ annual income. Only Hawaii, with a debt
that equals 25.8% of annual income, surpasses Illinois. The third-highest debtor state is Connecticut, at 22.9%.
Illinois’ debt-to-income
ratio is more than three and a half times higher than the national average of
6.9%.
Fitch
Ratings calculates that Illinois
taxpayers owe $134 billion, including $101 billion in pension debt and $33
billion in other state government debt. The Fitch calculation does not include Illinois’ sizable backlog of bills, which is about $8.5
billion according to the Illinois
Comptroller,and would drive
the total debt even higher if included. The non-partisan Civic Federation has
estimated that that bill backlog alone will climb to about $35 billion within
five years.
The state
with the lowest debt-to-income ratio is Tennessee,
where state government owes debt equal to just 2% of residents’ annual income.
Illinois fares far worse
than most of its fellow large states. California, whose credit rating shares
the bottom of the nation with Illinois, has a significantly lower
debt-to-income ratio of 8.9%. Among the ten most populous states in the nation,
Illinois is
the only state with a debt-to-income ratio greater than 10%.
Illinois is alone in the
nation with its combination of high debt and poor credit rating.
Illinois’
non-pension debt is 6.2 percent of personal income, while the pension debt is
18.8 percent of personal income.
(The seven
states that are missing from the analysis have not had bonds rated by Fitch).
Now,
politicians (and public employees) in Illinois may point out that
debt-to-income ratios don’t necessarily mean it’s in a hideous shape . . . and
that would be true if that pension amount weren’t inexorably growing growing growing . . . That 18.8%
of income for the unfunded pension liability does not include the pensions that
will be accrued in years to come, for which payments also need to be made.
And those
pensions will accrue, in the land where judges automatically gets raises according to the
very state constitution, and no matter what current or future legislatures
say about it.
Let’s check
out how well other states did:
Connecticut
and Hawaii both fund local school capital and teacher pensions, boosting their
obligations, the analysts said. Hawaii’s combined ratio is about 26 percent of
personal income, the highest value among rated states, compared with 9.2
percent for tax-supported debt, second highest. Connecticut ranked third at
almost 23 percent, followed by Kentucky
at about 22 percent.
Massachusetts (STOMA1)
(STOMA1), which tops debt rankings at about 10 percent before pensions are
added, falls to a sixth-highest 18 percent. Ranked without retirement
obligations, Connecticut is second at 9.3
percent of income, followed by Hawaii
at 9.2 percent.
Tennessee
(STOTN1) (STOTN1) has the lowest combined amount, at 2 percent of personal
income, followed by Iowa, 2.2 percent, Idaho, 2.5 percent, and South Dakota,
2.6 percent, according to the report. The four were among the 10 with the smallest
tax-supported debt.
Hmmmm. The second-worst
state is Illinois, and the worst state is Hawaii.
Never saw
that coming.
Would
anybody like to figure out what is similar about the states with the worst debt
load, as well as the states with the least?
Anybody?
Bueller?
http://www.conservativecommune.com/2012/03/public-pensions-and-state-debt-just-how-screwed-are-we/