The total cost burden pensions, OPEBs, and debt service for all states and the largest counties and cities appears to be under control in many jurisdictions, although a handful face an enormous challenge, according to a brief from the Center for Retirement Research at Boston College. These costs assume a 6 percent discount rate and an adequate amortization schedule, and are compared to own-source revenue.
The media is prone to lumping all of a public entity's unfunded liabilities together and making alarming claims that all state plans are about to go bankrupt. The evidence suggests otherwise, the brief explains.
Looking at aggregate costs ignores the heterogeneity of the situation across governments, the brief points out. For example, New Jersey, Illinois, and Connecticut clearly have very large pension costs relative to their revenue base, but their situations are atypical. The overall state average of 4.3 percent is far below that of the most troubled states, and Florida, Iowa, and Nebraska have a cost burden that is much lower than the average.
The report concludes that the outlook at the state and local level is extremely heterogeneous; a small minority face dire...