Aggregate funded and unfunded liabilities of the states divided by the number of taxpayers

We came across The 2013 Financial State of the States and wanted to bring broader attention to it. The report addresses the scale of the problem of unfunded liabilities of state pensions & other retirement benefits. Recall these amounts are typically off balance sheet items, unseen & poorly understood by the public, and therefore a great source of financial & fiscal abuse by politicians. They are very real and large.

Below is an estimate of the scale of the aggregate problem: you can see that only $195 billion of the estimated $1.1 trillion of liabilities are actually reported on states’ balance sheets. So how is a citizen to know? Well, the intent was that citizens were not supposed to know and that’s the point of abuse. The deception has largely been successful:

source: Truth in Accounting research as in The 2013 Financial State of the States

Some of their definitions will be helpful before we get to the chart below. They’re pretty simple.

• “Assets” are those reported on the state’s balance sheet, except Net Pension Assets
• “Capital Assets” include infrastructure like buildings, roads, bridges and parks that realistically cannot be used to pay bills.
• “Restricted Assets” are those assets that are restricted by law or contract. See the detailed definition in the Methodology section of the report.
• “Assets Available to Pay Bills” is the remaining amount after subtracting Capital Assets and Restricted Assets from Assets.
• “Bills” is the amount of accumulated debt and unfunded retirement promises the state has made  
• “Money Needed to Pay Bills” is calculated by subtracting Bills from Assets Available to Pay Bills.
• “Each Taxpayer’s Financial Burden” is the Money Needed to Pay Bills divided by the number of state taxpayers. The number of each state’s taxpayers is based on the number of federal filers who paid federal taxes.(Internal Revenue Service 2011) The last available data from the Internal Revenue Service is for 2011, so the number was increased by the percentage of increase in the estimated population accounting to the Census Department.(U.S. Census Bureau 2013)

So, as you look at the chart below, recall the Taxpayer Burden represents each taxpayer’s share of the deficit of funded and unfunded liabilities, net of the state’s assets available to pay them. Simply, it is your share of existing obligations, marked to market, that your state cannot today pay. These numbers do not include municipal liabilities which would add considerably to the burden.

There is only one way each state can meet those obligations: taxes. So, if the chart may be taken as a predictor of increasing taxes it may also be taken as an indicator of future migration of businesses and individuals, particularly those approaching retirement... that is to say capital flight by those who can. And if the people with money start leaving, and tax revenues are levered to higher brackets, well, might one anticipate declining tax revenues? So goes the death spiral.

The full list and summaries of individual states are in the report (starting at p.42 ff.) The report also contains vital policy recommendations to reform financial reporting standards of the states and municipalities. The sponsor of the study is State Data Lab. They also provide some tools for comparative analyses.

Kudos to them.

Our take: combine this data with the Tax Foundation's comparative tax study of the states and you've got a good start on your retirement plan. You know where you don't want to be at any rate.