Back in March we shared the staggering results of a Bankrate survey which found that the average American household couldn’t afford to write a measly $500 check in the event of an unexpected emergency (see: “The Reality Is, Half Of Americans Can’t Afford To Write A $500 Check”). Of course, as we note frequently, while the talking heads of daytime financial TV shows love to reference surging economic indicators like unemployment figures, the fact is that the number of Americans not participating in the work force remains near all-time highs and wage growth, despite “full employment” levels, has been practically non-existent since the great recession.
Given the above, we can only presume that the average person in New Jersey, Connecticut, Illinois, Kentucky, etc. is going to have a somewhat difficult time producing their $10,000 – $27,000 share of their state’s massive pension and debt obligations.
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As CNBC points out today via S&P Global Ratings, decades of budget mismanagement and hollow pension promises to public employees has resulted in a mountain of debt that many states are unlikely to ever repay.
New Jersey has set aside just 31 percent of what it needs to pay pensions costs. Kentucky, (31 percent) Illinois (36 percent) Connecticut (41 percent) and Hawaii (541 percent) are the worst off.
States with the best funding levels include Wisconsin (98 percent), South Dakota (97 percent), New York (93 percent), Tennessee (88 percent) and North Carolina (87 percent).
In New Jersey, the funding gap represents nearly 42 percent of the Garden State’s Gross State Product – or more than $27,000 for every resident, according to S&P Global Ratings.
Other underfunded states include Connecticut ($22,700 per person), Hawaii ($15,700), Illinois ($15,900) and Alaska ($18,200).
That compares with Nebraska, where the underfunding represents just $242 for every resident. Taxpayers in South Dakota ($598 per person), Idaho ($472), Iowa ($752), and Tennessee ($806) also face relatively low risk of having to make up for unfunded state liabilities.
Of course, we can’t help but notice that 8 of the 10 worst funded states in America just happen to be “deep blue” bastions of liberalism. Could it be that perpetually higher taxes and overly burdensome regulations end up being negative for state budgets in the long term?
Most pensions, both public and private, cannot be paid in dollars equal to today’s dollars.
They may end up being paid but the payments won’t buy near as much as is being expected based on today’s buying power when they are.
It may be best to start planing on them as a supplement to retirement funding rather than the main source of funding.
You could have posted this chart 10 years ago, and it would have looked just as scary. This really and truly has been going on for a long ass time. At what point does it finally start to matter? Because it sure as hell dont matter today, or yesterday, or any of the past 10 years.
I think it starts mattering as the number of retirees starts rapidly increasing as people have been in the pension system long enough to retire.
Sort of like projected SS and Medicare problems will matter as soon as the baby boomers start hitting their peak retirement numbers as aged members who no longer want to keep working retire or decide to collect while they continue working.
I think that will be within the next 10 years, but don’t have the actual numbers and don’t have the time to research them for accuracy. Someone here may have them and want to give a more accurate prediction about it.
The pensions and SS will be paid. The government will do what it has always done. They will print the money. Inflate the obligation away like Venezuela and Zimbabwe. It’s all good.
I guess the Bonus Veterans will be replaced by the Gray Army marching on Washington demanding their money. They’ll get it too….but it’ll be lead not cash .
And of course, don’t forget the Federal debt:
http://usdebtclock.org/
Where the current share for each taxpayer (as opposed to citizen) for the current debt is $168,861
And the per taxpayer share of the unfunded liabilities is $899,833.
And indeed, the government will print whatever it takes….but when your $1400 Social Security check or $1400 public pension check barely covers a day’s worth of groceries, it will mean NOTHING that they held up their end of the “bargain” or that they “saved” Social Security for future generations.
The issue comes down to taxes. Those states with the higher taxes will see migration to states with lower taxes. As a consequence it will be easier to fund government pensions in those states people are migrating to and harder to fund government in states where they are migrating from.
This is why raising taxes is counter productive. It simply does not matter what the set aside is.