State benefits cost $2.73 trillion
State governments have promised $2.73 trillion worth of retirement benefits to their employees, according to a new study by the Pew Charitable Trusts. They have set aside about $2 trillion to cover those benefits, leaving a funding gap of $731 billion.
More than half of that gap represents the cost of retiree health care and other non-pension benefits, which states typically don’t prefund. Under new accounting rules, government entities will be required to show a liability for such benefits in their financial reports for fiscal 2008.
The report gives Missouri a “needs improvement” rating. Here’s part of its analysis:
Missouri has done a good job keeping up with the required contributions to its state employees’ pension plan, but has fallen a bit short in recent years in doing the same with its school funds. On the non-pension side, the state has a moderate level of retiree health benefits and has made a strong effort at containing the growth in the costs of those benefits ….
Illinois is judged ”below par,” with some scathing commentary:
Illinois has double the trouble of most states: a severely underfunded pension system and some of the steepest bills in the country for retiree health care benefits. On the pension side, Illinois has one of the poorest-funded systems in the country. While the state has made a number of reforms, it still is underfunding its annual contributions.
One interesting set of numbers: Illinois’ retiree-medical obligation is estimated at $48 billion, which is equal to 709 percent of covered payroll. Missouri’s obligation of $2.2 billion is equal to 135 percent of payroll, which is right at the national median.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
Anybody else see that the we are headed for some scary times when it comes to all the “obligations” our collective governments have placed upon us?
#1 — I sure do see the problem, although the debt obligations to U.S. citizens aren’t nearly as much of a problem as those to foreigners. That’s what happens when government pays employees with a disproportionate ratio of pension obligations to current wages.
Why? Because current wages need to be paid out of current taxes — which are opposed in knee-jerk faxshion by anti-tax zealots — while pensions only need to be paid by taxes on future citizens.
Pay now or pay later.
Of course, future taxpayers have the option (and, unfortunately, the incentive) to reduce the real cost of their obligations to those receiving pensions, by inflating the money supply.
Ted, you defy logic. How can the debts to other nations be more of a problem than the debts to American citizens? A default is a default and I’d much rather we default with China, Saudi, any foreigner before I would default against our own citizens.
It would be financially foolish for the U.S. government to default on its obligations to anybody. That’s the sort of thing that leads to domestic unrest and foreign wars.
But the reason why debt owed to U.S. citizens is less onerous than that owed to foreigners is that the dollars taxed from one group of U.S. citizens to pay the debt go to another group of U.S. citizens who own the debt. So the real goods and services purchased with the money paid on the debt remain within the U.S.!
It’s not that I think that people in the U.S. are “better” — in a moral sense — than foreigners (other than Islamic fundamentalists and Zionists). But as a matter of simple self-interest I prefer that we not run up so much debt to foreigners that paying it off in the future will seriously diminish our own standard of living.
How about this. We quit spending money that we don’t freaking have? Period. Quit all this dang borrowing whether it be from American citizens or three legged Martians really doesn’t matter.
Borrowing — whether by government or by private parties — is like most other things. It’s fine if done in moderation. That’s the opinion of a card-carrying political moderate.
Probably the best test of “moderation” is the ratio of debt service cost to total income/revenues. In general, I think that it ought to be below about 15%.
I don’t know what the ratio is for the U.S. Treasury and although I could look it up — to be honest — I’m not motivated to do so because I wouldn’t be able to make any difference. But if anyone else would care to do so, I’d be — um — moderately interested.