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Richard Rider

The new state public employee pension debt figures are out. Oh dear!

Recently I posted a blog item on California’s dismal “per household” debt for its underfunded public pensions.  California was ranked as the third worst state with a debt of $77,700 — based on the 2014 figures.  Alaska was easily the worst, with basket case Illinois edging us out for 2nd worst.
Good news!  The 2015 update is out!

The bad news?  The 2015 update is out.

BOTTOM LINE: We blew passed Illinois.  By a LOT.  We locked up 2nd place, as our situation got much worse in a single year.  We went from $77,700 pension debt per household to $92,748.  In one year.  Oh my!

Illinois is as bad as ever. We’re just “badder.”  Illinois’ pension household obligation rose from $77,862 to “only” $84,353.

Of course, this growing problem is nationwide, as reflected in the change of the national average. The states’ average went from $41,219 in 2014 to $47,388 in 2015.

The national household state pension obligation rose 15.0% in 2015.  The California obligation rose 19.4%.  The California obligation is 95.8% higher than the national average.

What about Texas, you ask?  Always fun to report on the liberals’ most hated state.  The Lone Star state’s 2015 household pension obligation is $30,175 — up 10.4% from the year before.

Actually this comparison of California with the national average is a bit unfair.  It weighs all states equally. But CA has 12% of the nation’s population, so we disproportionately affect the nation’s average.

A more accurate comparison is to compare CA with just the other 49 states.  Unfortunately that refinement more accurately presents just how bad our state is compared to the others.

Making that adjustment, the 49 state pension obligation average is $41,202.  That makes the CA obligation 125.1% higher than the average for the other 49 states — much worse that the 95.8% comparison for the full 50 states.

Another fair comparison would be to compare CA with the median of the other 49 states (Alabama). Alabama has an obligation of $37,424.  California’s obligation is 147.8% higher than the median of these other 49 states.  That’s essentially two and a half times higher than Alabama.  Hoh boy.

One other dismal point.  Nut-ball Alaska bet on eternal, unlimited oil revenues, so they set up generous government pensions with WAAAYYYYYY too little funding. They’ve belatedly seen the light, and have reversed course.  They are shifting to 401k-type plans for new hires, but they still have a huge obligation for their past lapses in judgement.  Their sky-high household pension obligation actually DROPPED in 2015 — from $113,137 to $110,538.

While one year is too short a timeline to establish a reliable trend, it appears that in a VERY few years California will zoom past Alaska, becoming the worst pension obligation state in the nation. Indeed, if the changes from the 2014 to 2015 numbers are the norm, we could pass Alaska as early as NEXT YEAR.   Actually THIS year, as 2016 will be the next data set to come out.

Let me end with a bit of cautionary good news.  The stock market has risen since these figures were compiled.  The S&P 500 is up 10.8% since the first of the year (through 12/2/16). So it’s doubtful the obligation will rise too much this year. But offsetting this good stock market performance are two factors:

1.  Over and over, it’s becoming apparent that the projections of pension retiree life expectancy understate the risk by using outdated mortality tables, and this error is periodically adjusted — increasing the obligation.
2.  A good portion of the pension funds are invested in fixed debt — a TERRIBLE investment that of late has been dropping like a stone in anticipation of rising interest rates. That portion of the pension portfolio will finish with a net LOSS for the year, even counting the interest payments received.

The thing to keep in mind is that the most important aspect of this study is the RANKING of the states.  This investment news — good or bad — will likely affect each state’s pension fund roughly the same. Hence it will have little effect on the state rankings, I suspect.

Here’s the new 2015 chart for the full 50 states:


Key Metrics for year 2015
Rank State Market Pension Debt/Household
1 Alaska $110,538
2 California $92,748
3 Illinois $84,353
4 Connecticut $81,273
5 Hawaii $67,638
6 Massachusetts $65,075
7 New Jersey $63,297
8 New Mexico $60,821
9 Oregon $57,844
10 Nevada $56,695
11 Maryland $52,454
12 Ohio $50,756
13 Mississippi $50,444
14 Kentucky $49,667
15 Pennsylvania $48,405
16 Colorado $47,445
17 Wyoming $46,927
18 Minnesota $43,490
19 New York $40,812
20 Louisiana $40,406
21 Rhode Island $40,098
22 Montana $39,797
23 Michigan $39,611
24 Missouri $37,530
25 Alabama $37,424
26 Virginia $36,055
27 Washington $35,443
28 Arizona $35,023
29 Wisconsin $34,494
30 South Carolina $34,394
31 Kansas $34,346
32 Utah $33,798
33 Georgia $33,590
34 New Hampshire $33,184
35 Florida $32,104
36 Oklahoma $30,928
37 Texas $30,175
38 Arkansas $29,883
39 North Dakota $29,354
40 Delaware $29,349
41 Iowa $28,749
42 South Dakota $27,850
43 Maine $26,764
44 West Virginia $26,539
45 Idaho $25,949
46 Nebraska $24,992
47 Vermont $24,326
48 North Carolina $22,066
49 Indiana $19,686
50 Tennessee $19,586
51 District of Columbia $14,020