Unfunded Pension Liabilities Most of States' Debt

Market-valued unfunded public pension liabilities make up more than half of all state debt, accounting for $2.8 trillion of the total. These market-valued pension liabilities provide 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, the report contends.  

The latest traditionally calculated figures total only $760 billion in unfunded pension liabilities. “Total state debt using these figures is still over $2 trillion, but a comprehensive view of state debt without accurately assessed public pension liabilities disguises the problem,” the report said.  

States and other sources have not yet released market value pension liability figures for fiscal year 2011, so this year’s report uses the same market-valued pension liability figures first published in 2010 and used in the previous year’s report. Even so, growth in traditionally calculated unfunded pension liability totals indicates that if updated numbers were available, aggregate state debt would have continued to increase. 

Outstanding debt and other post-employment benefit liabilities each contribute approximately $600 billion to total debt. Outstanding debt includes bonds, leases and other regularly assessed components of primary government debt. Post-employment benefits include health care and other non-pension benefit guarantees owed to public employees.  

The final two items included in the total state debt calculation are outstanding unemployment trust fund loans and fiscal year 2013 budget gaps. Unemployment trust fund loans represent payments due to the federal government, often to cover rising unemployment costs as a result of the recent economic downturn. The fiscal year 2013 budget gap is the gap between revenues and expenditures in each state's most recent budget year. Both of these figures declined from last year's report; the budget gap total decreased by more than half.   

“However, these totals failed to make a sizable impact on state debt; their totals are dramatically overshadowed by pension liabilities, OPEB liabilities and outstanding debt,” the report concluded.