State liabilities grow as new standards force them to be honest. Veronique de Rugy reports some findings of the 2018 edition of the Mercatus Center’s State Fiscal Rankings:
[T]he data show that long-term liabilities have increased over time on average, with a pretty big jump since 2015. This is partly due to a recent transparency requirement by the Governmental Accounting Standards Board that makes states report unfunded pension obligations on their balance sheets. Under the older standards, states didn’t have to report the true size of their pension liabilities. To understand the impact of this change, consider the following: From 2006 to 2014, long-term liabilities per capita grew by about 4 percent annually, on average. Between fiscal year 2015 and fiscal year 2016, that average ballooned by a sobering 54 percent.
The older standards were obviously inadequate to expose the true size of the pension liabilities faced by most states. The new standards, however, aren’t perfect either. For instance, until next year when a new requirement will come into effect, states haven’t had to report their health care liabilities, which allowed them to appear more fiscally fit than they truly were and are.
Look at Nebraska, the state in first place overall. Upon closer inspection, the state ranks 37th in budget solvency, which means that it spent more money than it made in tax revenue in 2016. Nebraska’s pensions show that it’s in a worse position than advertised. The state reports unfunded pension liabilities of $1.17 billion. Yet when valued on a true market basis, it’s actually underfunded by $20.9 billion. Nebraska does better than most states on underfunding pensions, but it has room to improve. Its weakening budget position and growing unfunded pension obligations place more pressure on fiscal health than its top rank lets on.
[Veronique de Rugy, “Think Your State Is Fiscally Sound? Think Again,” Reason, October 11]
