With many state and local agencies unable to fully fund their retirement benefits, some states' debt is mounting beyond that of entire nations. According to the OECD's most recent debt-to-GDP rankings, Estonia had the lowest debt at 13% of GDP, or a total of $2.5 billion. As you'll see, each state on this list has far more debt than Estonia, and for some, more than several other countries too. Read on to find out which states are heavily in the red and how much they owe, according to the Census Bureau’s most recent figures.
Bonds account for the largest portion of Oklahoma’s debt, however unfunded pensions are a close second, followed by retiree healthcare benefits. According to the Pew Charitable Trust, most states are struggling with budget shortfalls when it comes to pension benefits. This debt is more than that of Barbados, which has $7.5 billion in debt as of 2018, according to briefings from rating agency A.M. Best.
The state's general treasurer Seth Magaziner released his second debt affordability study this year, and reports that Rhode Island’s debt is “generally affordable and within acceptable levels.” But the state's debt is bigger than several countries. Bonds, which have been used to support infrastructure projects among other things, and pensions are the biggest expense. Looking abroad, Paraguay held less debt than Rhode Island with $7.7 billion in 2017, according to the Economic Commission for Latin America and the Caribbean.
Pensions and healthcare benefits make up the overwhelming majority of Hawaii’s debt. According to the Pew Charitable Trust, in 2017 Hawaii reported $15.7 billion in assets to cover $28.6 billion in liabilities, just over half the amount needed. That's a dramatic drop from 94% in 2000. This leaves the state relying on digging itself into debt when it comes to paying out people's pensions. Comparatively, in 2018 the Bahamas' Central Bank reported the country's debt had just surpassed the $8 billion mark.
A former governor initiated wide-ranging tax cuts in 2012 that left the state with crippling revenue shortfalls until a bipartisan effort in the legislature passed a repeal in 2017. Retiree pensions and healthcare are the top contributors to Kansas’ debt. In fact, many see Kansas' failed tax cuts as the template for Trump's tax cuts which he believes will spur on economic growth. Kansas' debt is higher than that of the Republic of Congo, which has $9.14 billion in public or publicly guaranteed debt according to the IMF.
Pensions and healthcare for the retired make up at least half of Georgia’s debt. For example, the Teachers Retirement System of Georgia has a shortage of more than $20 billion, with state government having to reroute more than $600 million away from other budget priorities to make up for the shortfall, during the three years between 2016 and 2018. Georgia has more debt than Iceland, which recorded $9.9 million in public debt for 2017, according to the CIA's World Factbook (CIA).
Over the last decade Oregon’s debt has remained roughly the same, according to figures released by its treasury. Predominantly tied up in bonds, Oregon has seen a shift away from appropriation debt (meaning specified) to more general obligation bonds, which it says are lower cost. According to research from the Mercatus Center at George Mason University, Oregon's pensions-to-income ratio has increased significantly, from 15% in 2006 to 65% in 2016, which shows that the state has an ageing population and is struggling to fund pensions. With $13.4 billion state debt, Oregon has more debt than Luxembourg, which has $12.7 billion debt accoring to Eurostat, the EU's statistics bureau.
Unfunded pension debt and healthcare comprises roughly half of Arizona’s debt. The Arizona State Retirement System, made up of teachers and other state and local government workers, has required a 10% increase in contributions from its members since the early 2000s when it was last able to fully fund its costs. Despite the increases the fund can currently only cover 70% of its future obligations. Arizona's debt is higher than that of Bulgaria, which is at $13.3 billion according to the Ministry of Finance of the Republic of Bulgaria.
Kentucky is one of the three worst-funded retirement systems in the nation, according to a Pew report. This is partly because the state did not consistently set aside the amount of money known to be necessary to cover the costs of promised benefits. Indeed, in March it was reported that the state has $2 billion available but needs to pay state workers $15 billion over the next three decades. This had a snowball effect, increasing pension costs over time. The Pew report also detailed that from 2007 to 2017, pension contributions increased 267% in Kentucky. This southern state has more debt than Laos, which recorded $13.6 billion of total public and private debt in 2017, according to the CIA.
With state debt per capita of $3,056 according to the US Census Bureau, Minnesota ranks 31st among the states for per capita debt. In March this year, it was reported that Governor Walz has introduced a new proposal that would add $1.3 billion to the state's debt burden. Minnesota has more debt than Jamaica, which had debts totaling $14.9 billion at the end of 2017, according to the CIA.
More than half of South Carolina’s debt stems from unfunded retirement benefits. According to The Post and Courier, one in nine residents rely on the state’s retirement system. However, since 2011 mandatory employee pension contribution rates have increased each year, and newly hired state workers have received less generous pension plans. State representatives hope this will help the retirement system become more fully funded. Comparatively, the CIA reported Mauritius had a $14.7 billion debt, as of December 2017.
With approximately 75% of its debt coming from unfunded retirement benefits, Colorado is in the top five states with the most unfunded public employee pensions. In 2018, the state legislature narrowly passed a plan to stabilize the system. It requires increased contributions, and a later retirement age, among other changes. Colorado's debt is the same as Belarus', whose finance ministry announced in March that the country's foreign debt amounts to $16.7 billion.
State-funded jobs like teachers, police officers and firefighters make up the largest employment sector in North Carolina, so it makes sense that providing healthcare benefits to retired public sector employees is its largest source of debt. The unfunded healthcare obligations have spurned new laws, including one that will mean new public employee hires after 2020 will no longer be able to access government health insurance upon retirement. Just shy of $17 billion, North Carolina's debt is twice as large as that of the Bahamas, at $8 billion in 2018.
Louisiana's debt, comprised mostly of unfunded pensions and healthcare, did actually decrease this year for the first time in a decade. The Teachers’ Retirement System of Louisiana is the state's largest public retirement system, providing benefits to more than 160,000 people. Another 100,000 people rely on the Louisiana State Employees’ Retirement System. To address the current shortfall the state legislature has adopted reforms, starting in 2005, such as increasing the retirement age. At $17.3 billion in 2017, El Salvador had less debt than the state of Louisiana, according to the CIA.
To address its debt from unfunded pensions, Missouri enacted legislation in 2017 to allow its public employee retirement system to offer buyouts to select members. Approximately 25% of eligible employees chose to receive their retirement benefits as a lump sum rather than a lifetime annuity. According to the National Association of State Retirement Administrators this meant a $40.5 million reduction of the system’s unfunded liability. The state of Missouri has roughly the same amount of debt as Uzbekistan, which was at $19.1 billion in April according to its Central Bank.
Like many states, pensions and healthcare make up a large portion of Indiana's debt. In April the Indiana legislature included $150 million payment for teacher’s pension liabilities in its two-year budget. The anticipated shortfall is still more than $12 billion for pensions alone. Indiana's debt is nearly 10 times that of Estonia, whose $2.5 billion is the lowest in the OECD rankings.
Wisconsin has been setting aside enough money to meet most of its public employee pension obligations, though it is lacking at least $1 billion in funding for retiree healthcare. Overall, its largest source of debt is bonds. Wisconsin has more than twice the public debt of Iceland, with $9.9 billion.
More than half of Maryland’s debt is from unfunded retiree healthcare and pensions. According to the Maryland Public Policy Institute, the Maryland State Retirement and Pension System has not been fully funded since financial year 2000. In fact, a recent report from the American Legislative Exchange Council (ALEC) found that unfunded pension liabilities make up nearly a quarter (24.18%) of Maryland's gross state product (GSP). Maryland has more debt than Panama, whose finance ministry reported $24.7 billion in debt in 2018.
The majority of Virginia’s debt is held in bonds, used primarily for infrastructure construction and improvement of public facilities as well as transportation. A very small portion of the state’s debt does come from unfunded retirement benefits. Virginia has more debt than Serbia, whose ministry of finance reported $25.6 billion in public debt on 31 December 2018.
According to the Debt Affordability Study, conducted last year by the State Treasurer of Washington Duane Davidson, the state ranks sixth in the nation when it comes to state debt per capita. Davidson has called for a 2018 influx of revenue to be used to pay down pension and healthcare debts, as opposed to using the money to expand other existing state government programs. Washington has more debt than Tanzania, which owed $26.8 billion as of December 2017, according to the African Development Bank.
While the state does have unfunded retirement benefits, they're not as high as its bond debt. The Ohio Office of Budget and Management announced in September that it has secured its lowest interest rate ever, 2.35%, when it issued $300 million in bonds to build new schools. Budget officials says low rates allow the state to spend more elsewhere. At $33.2 billion Ohio's debt is more than the public debts of Barbados, the Bahamas and Paraguay combined.
Recent numbers released by the state government show Florida’s debts have continued to drop over roughly the last decade, which finance officials attribute to refinancing state loans. The state also has one of the best credit ratings of any state, with a top-tier AAA credit rating from three financial services companies including Moody's. This means Florida has to pay less interest on its debts. Compared to its Caribbean neighbor, Jamaica with $14.9 billion, Florida has twice the debt.
The majority of Michigan's debt stems from unfunded pension and healthcare benefits. Yet it's an issue that varies widely across the state, with some municipalities' pension systems fully funded while others are just 50% funded. According to the Mackinac Center for Public Policy, Michigan’s lack of fully funded pension systems contributed to the financial crises of cities like Flint and Detroit. Michigan's debt is more than that of Tunisia, whose finance ministry announced this spring its public debt is around the $28 billion mark.
Among all the states, Connecticut has one of the highest per capita debts, $51,800, according to Truth in Accounting. Funding for retirement benefits is at the heart of its debt, which Moody’s has described as one of the nation’s “most significant credit challenges”. The agency reports Connecticut’s debt accounts for 39% of its gross state product (the value of its goods and services), which is the highest rate in the country. According to data from the CIA, Connecticut had more debt in 2016 than all public and private debts held in Lithuania at $34.5 billion.
While unfunded retirement benefits including pensions and healthcare alike contribute significantly to Pennsylvania's debt, there are other issues affecting the state’s finances. For example, the Commonwealth Foundation highlights that although revenues have grown, for the fiscal year 2018-19 more than $800 million in Department of Human Services expenses were paid using one-time revenue sources that won't be available next year. Pennsylvania has more debt than Latvia, which is estimated to be $40 billion for the same time period according to the CIA.
Healthcare for retired public employees is a significant source of debt for Texas, even more so than unfunded pensions. Looking specifically at the Texas Teacher Retirement System (TRS) for example, it relies on contributions from a percentage of current teachers’ salaries. However these salaries are growing at a slower rate than that of the costs of healthcare. "We're always fighting a losing battle in terms of that funding", TRS Executive Director Brian Guthrie said of the matter. Texas' debt is higher than that of Jordan: reports from the country's finance ministry reveal it has $41.6 billion in public debt.
At least 75% of Illinois’ debt comes from unfunded pension and retirement healthcare liabilities. Like Kentucky, it has one of the worst-funded retirement systems in the nation and pension contributions went up 424% from 2007 to 2017. The state legislature passed reforms in 2013, which the state supreme court later repealed in 2015 stating it is unconstitutional to “diminish or impair” pension benefits. The state of Illinois has more debt than Dubai, which has $60 billion in government-related entities (GRE) debt according to a report by Capital Economics.
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According to a recent survey by S&P Global Ratings, New Jersey has the most underfunded pension fund system in the country. Contributions are up by 100 percent in the state from 2007 to 2017, however its unfunded pension debts remain the second highest in the nation. New Jersey has more debt than the Sudan, which the IMF estimates held about $51 billion in public debt in 2016.
One unique reason for Massachusetts’ unfunded pension debt is that it is one of few states to allow public employees to cash out unused sick and vacation days at retirement. Local media reported that 1,000 state retirees earned $100,000 or more in pension pay last year. Massachusetts has more debt than Slovakia, which the CIA says held $75 billion in public and private debt in 2016.
Unfunded healthcare for retirees is a significant portion of New York’s debt, and when local debt for healthcare is added in, the total exceeds $100 million. In New York City alone, there are roughly 300,000 current public employees and another 230,000 are retired. Future costs for the city are on par with the current unfunded liabilities for state and local agencies combined. New York's debt is slighly higher than that of Hungary, for which the CIA estimates there was $131.8 billion of public and private debt in 2017.
Like many states, California is struggling to meet its retirement benefit obligations, but it wasn’t always that way. During the 1990s and early 2000s the California Public Employees Retirement System was fully funded. During the Recession it took a $100 million hit, and currently it reports gaps of almost $140 billion between its estimated obligations to retirees and the current value of its assets. The CIA put Finland's public and private debt at an estimate of $150.6 billion, which is just less than that of California.
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