#1THE PEW CENTER ON THE STATES The Widening Gap: Pensions and Retiree Health Care Presentation to the Rhode Island General Assembly Providence, Rhode Island 1#2The rise and fall of state revenues Nationally, states' tax revenues are 9 percent below peak levels. (First Q2011 compared to second Q2008, adjusted for inflation) CA OR WA AK NV MT ND ME WY NE WI MI NY MA CT RI PA NJ OH UT IN DE Co VA KS MO MD TN NC OK AR AZ NM SC MS AL GA TX LA Source: Pew Center on the States, 2011 HI 50% FL Drop in revenue 25% Increase in revenue 5% THE PEW CENTER ON THE STATES 2#3THE PEW CENTER ON THE STATES Red ink states Over five years, states closed $480 billion in budget gaps. In FY 2012, 45 states had budget shortfalls. $480 billion Source: Pew Center on the States, 2011 3#4The Widening Gap, 2009 For the first time since Pew began tracking public sector retirement obligations, the unfunded liabilities for pensions is larger than retiree health care and other benefits. funded unfunded $659 billion $2.3 trillion $31 billion $604 billion Pensions - $2.94 trillion 78 percent funded OPEB-$635 billion 5 percent funded Source: Pew Center on the States, 2011 THE PEW CENTER ON THE STATES 4#5THE PEW CENTER ON THE STATES OR 86% ID 74% NV 72% States' Public Sector Pensions 78% Funded in FY09 Thirty-one states were below the 80 percent funded threshold for a well-funded pension system. WA 99% MT ND ME 73% 74% 81% MN 77% SD WI 100% NY NH 58% WY 92% MI 101% VT 73% 89% 79% IA PA MA 68% NE 81% 81% OH 88% RI 59% CA 81% UT 86% CO S5 IL IN 66% 51% 67% WV CT 62% 69% 56% VA KS MO KY 80% NJ 66% 64% 58% 79% NC DE 94% OK TN 90% 97% MD 65% AZ 78% NM 76% 57% AR SC 78% 69% States with less than 80% of pension liabilities funded MS AL GA TX 67% 74% 87% 84% LA 60% AK 61% HI 69% Source: Pew Center on the States, 2011 FL 84% 5#6A growing annual bill The annual bill to fund all 50 states' pension obligations has risen 152 percent since 2000. THE PEW CENTER ON THE STATES $ = In billions $68 $64 $61 $55 $50 $42 $34 $29 $27 $27 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Pew Center on the States, 2011 6#7Mixed Picture: FY10 Data Show Investment Gains, Recession's Legacy For the 16 states for which fiscal year 2010 data are now available, the average pension funding level fell slightly to 75 percent from 77 percent the previous year. Figures are in thousands. THE PEW CENTER ON THE STATES Pension liability Pct. funded Required contribution Pct. paid State Connecticut Delaware FY10 $44,826,900 7,922,174 Florida 148,116,907 Idaho Iowa 12,513,200 27,057,850 FY09 $41,311,400 53% 7,615,166 92 141,485,280 82 12,057,500 79 26,602,516 81 FY10 FY09 62% FY10 $1,472,000 FY09 $1,307,200 87% FY10 FY09 96% 94 148,586 148,940 97 97 84 2,860,448 2,928,569 107 108 74 262,100 235,626 114 132 81 524,877 495,196 89 87 Kentucky 37,006,999 Louisiana 41,356,966 35,686,737 54 39,657,924 58 1,023,898 964,979 58 58 56 60 1,599,612 1,375,288 84 97 Maine 14,799,200 14,410,000 70 73 330,300 331,700 103 100 Maryland 54,498,265 53,054,565 64 65 1,544,873 1,338,342 87 84 Minnesota 57,604,243 60,835,351 80 77 1,276,570 1,128,407 67 78 Nevada 35,163,755 33,148,347 70 72 1,394,802 1,344,489 92 90 New Hampshire 8,953,932 North Dakota 4,977,500 8,475,062 58 58 269,677 262,984 100 75 4,475,800 72 81 107,524 83,339 66 80 Tennessee Texas Vermont 35,198,741 163,416,523 4,090,328 35,198,741 90 90 836,727 836,911 100 100 155,679,204 83 4,012,955 75 35 84 73 3,363,531 89,514 2,611,397 82 99 68,615 94 93 SOURCE: Pew Center on the States 2011. Funded ratios continue to decline. 7#8States' Retiree Health Benefits 5% Funded in FY09 Nineteen states had set aside no funds as of fiscal year 2009 to pay their bills coming due for retiree health care and other non-pension benefits. Only seven states had funded at least a quarter of their liability. Percent of Liability Funded 50% and above 0.1% to 49% 0% WA MT ND MN OR ID SD WY WI MI THE PEW CENTER ON THE STATES NY ME NE PA IA NO DATA NV AVAILABLE OH NH UT IL IN CA CO WV VT KS VA MO KY MA NC 97 TN RI AZ OK NM AR SC CT MS AL GA NJ LA TX DE MD AK FL Source: Pew Center on the States, 2011 HI 8#9Rhode Island's unfunded liability went up to 6.9 billion from 4.7 billion from 2009 to 2010, an increase of 2.2 billion. Employees' Retirement System State Employees Employees' Retirement System Teachers THE PEW CENTER ON THE STATES State Police Retirement Benefits Trust State Police Judicial Retirement Benefits Trusts 2010 Unfunded Liability Funding Ratio $2,700,451 48% $4,133,196 48% $28,542 70% $10,867 78% 2009 Unfunded Liability Funding Ratio $1,836,163 59% $2,892,032 58% $15,248 80% $4,899 88% 2008 Unfunded Liability Funding Ratio $1,671,461 62% $2,660,544 60% $14,102 80% $7,785 82% 2007 Unfunded Liability Funding Ratio $1,839,460 58% $3,012,144 55% $14,431 76% $2,828 91% NOTE: All numbers in thousands. SOURCE: Pew Center on the States, 2011. 6#10THE PEW CENTER ON THE STATES Assumptions and the unfunded liabilities States make assumptions about investment rates of return when they calculate how much money to set aside to pay for their employees' pension benefits. While there is no consensus about the appropriate return rate, we can illustrate the impact of different return rates. current assumptions $659 billion 8 percent Source: Pew Center on the States, 2011 5.22 percent 4.38 percent 10 10#11THE PEW CENTER ON THE STATES Assumptions and the unfunded liabilities States make assumptions about investment rates of return when they calculate how much money to set aside to pay for their employees' pension benefits. While there is no consensus about the appropriate return rate, we can illustrate the impact of different return rates. current assumptions 8 percent $659 billion $638 billion Source: Pew Center on the States, 2011 5.22 percent 4.38 percent 11 =4#12Assumptions and the unfunded liabilities States make assumptions about investment rates of return when they calculate how much money to set aside to pay for their employees' pension benefits. While there is no consensus about the appropriate return rate, we can illustrate the impact of different return rates. current assumptions 8 percent $659 billion $638 billion Source: Pew Center on the States, 2011 5.22 percent 4.38 percent $1.8 trillion THE PEW CENTER ON THE STATES 12#13Assumptions and the unfunded liabilities States make assumptions about investment rates of return when they calculate how much money to set aside to pay for their employees' pension benefits. While there is no consensus about the appropriate return rate, we can illustrate the impact of different return rates. current assumptions 8 percent $659 billion $638 billion Source: Pew Center on the States, 2011 5.22 percent 4.38 percent $1.8 trillion THE PEW CENTER ON THE STATES $2.4 trillion 33 13#14State pension reforms, 2010 WA THE PEW CENTER ON THE STATES ME MT ND OR MN ID SD WI NY WY MI IA PA NE VT NV OH UT IL IN NH CA CO WV MA KS MO VA KY RI NC CT TN AZ OK NM AR SC NJ DE MS AL GA MD TX LA AK HI FL Reduced benefits Increased employee contributions Both No reforms Source: Pew Center on the States, 2011 14 14#15State pension reforms: 2001 to 2010 THE PEW CENTER ON THE STATES WA ME MT ND OR MN SD WI NY WY MI ΙΑ PA NE VT Reduced benefits Increased employee contributions NV OH UT IL IN NH CA CO 54 KS MO VA KY MA NC RI Both TN AZ OK NM AR SC CT MS AL GA NJ TX DE 5 No reforms MD AK FL HI Source: Pew Center on the States, 2011 15#16THE PEW CENTER ON THE STATES State retiree health care reforms: 2001 to 2010 ☐ No reforms Reduced benefits Increased employee contributions Both Created a trust fund CA WA ME MT ND OR OR MN SD WI NY WY MIO IA PA NE VT NV UT OH IL IN NH WV MA KS MO VA RI NC CT TN AZ OK NM AR SC NJ DE GA MS AL MD AK Source: Pew Center on the States, 2011 HI TX FL 16#17Join our e-news list Nonpartisan research that helps build high-performing states. Featuring: Evidence on policies that work (or don't) Comparisons of states' performance on key issues State successes and lessons THE PEW CENTER ON THE STATES Sign up! http://bit.ly/pewstates THE PEW CENTER ON THE STATES Federal default poses serious risks for states and cities A federal debt default could make borrowing money more costly for state and local governments. It also could cause delays in federal funding to states and communities, adding to their budget challenges. Learn about the state and local stakes in the debt-ceiling debate. FAQ: The U.S. Debt Ceiling States balance budgets with cuts, not taxes, in 2011 Almost every state relied on deep spending cuts to close budget gaps this year, a significant change from 2009, when cuts were paired with a record $24 billion in tax and fee increases. Stateline, Pew's daily news service, looked at the causes and consequences of this trend and four others in its 2011 Legislative Review. Check out 5 major developments in state policy this year. 17#18THE PEW CENTER ON THE STATES www.PewCenterontheStates.org Kil Huh Director, Research [email protected] 18