Posted on Thursday, June 30, 2011
It’s not just the federal government - the states are broke, too.
The 50 state governments owe more than $1 trillion in unfunded pension contributions and health care obligations to retired public employees, according to an Associated Press survey of state-level budget data.
And the worst may be yet to come. Five states have budget deficits that account for more than one-fifth of the state’s general operating fund, and in seven more the deficit amounts to at least 15 percent of expected general fund revenues.
State governments also will have a 5 percent less revenue in the upcoming fiscal year than they did in 2007-08, before the collapse of major financial institutions prompted an economic recession, the AP found.
Adding to the trouble this year is the fact that states plugged holes during last two annual budgets with millions in federal stimulus dollars that are not available this year.
It is the looming pension debt – brought on in some cases by years of missed investment targets – that presents the largest hurdle for state governments forced to function on less revenue.
Combined, the 50 states have $689.5 billion in unfunded pension liabilities and owe an additional $418 billion to pay for retired public employees’ health care bills.
David Wyss, the chief economist at Standard & Poor’s in New York, told the AP the pension debt is “the biggest headwind that the states will be fighting against” as they seek to patch budget holes.
“It’s worrying because it’s such a widespread problem,” he said.
The states with the toughest budget situations are those hit hardest by the economic recession.
In Arizona, where the housing collapse has thousands of homes in foreclosure, tax revenue is 19 percent below 2007 levels. California and Florida are 18 percent lower, while Michigan and Tennessee are down 17 percent.
A few states have raised tax levels in an effort to increase revenues. Illinois, where Democrats control the governor’s mansion and both houses of the state legislature, this year increased personal income taxes to 5 percent, a 66 percent hike, and projects 20 percent more state revenue than in 2007.
New York also enacted a tax on wealthy residents and former California Gov. Arnold Schwarzenegger agreed to temporary increases in the state’s income, sales and vehicle taxes in 2009. His successor, Gov. Jerry Brown, is seeking to renew those increases for up to five years, which would bring in an estimated $9 billion per year.
POLITICO LLCReport: By: Reid J. Epstein
June 13, 2011 08:04 AM EDT