Will Your State Employees Get Their Retiree Benefits?
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Corporate executives and politicians negotiating with unions have tended to reach for the same eases fixes. Instead of raising pay, which would effect the bottom line immediately, the agreed to pay more generous retirement benefits, which kicks the can down the road. Well, the end of the road is in plain sight. GM was made bankrupt by the cost of unfunded health care liabilities. Increasingly it appears that states will be in a similar situation.
While pensions are also generally underfunded, in percentage terms retiree health benefits tend to have the biggest gap. Arkansas for example has $1.8 billion in unfunded retiree health care liabilities, which is about equal to a quarter's tax revenues. Each year, contributions to the system (probably the retiree's share of premiums) cover only 24% of the annual expense. And Arkansas, though bad, is not the worst of the bunch. Basically it looks like all state governments, whether run by Republicans or Democrats, kicked this can down the road and kept their fingers crossed hoping that some sort of national health care system would come along and relieve them of a liability that almost none of them have made provision for.
While Arkansas has funded 75% of its state retiree pension liability, the amount is so large that it still represents a tremendous amount of defacto debt, around $5.75 billion dollars. That's in a state of about 3 million living souls. And Arkansas is slightly better off than the average state.
When considering such things as whether to take on more debt this November (the ballot initiative to raise sales taxes in Arkanas would be used to back another bond issue) bear in mind that these two items alone mean that each family of four in the state already has what amount to over $11,000 dollars in state debt to pay down. And that does not even include the $300 million that Gov. Beebe borrowed from the feds without authorization from the voters for unemployment insurance benefits, much less the unhidden debt from various bond issues.
These same types of issues are going to come up all over the nations as politicians whose vision cannot extend past the next election desperately seek ways to avoid paying for their extravagant promises.