Size of Long-term Obligations Varies Across States

Source: Sarah Babbage and Kil Huh, Pew Charitable Trusts, Fiscal 50, August 19, 2014

States commit to future spending both when they borrow and when they fall short of funding the cost of retirement benefits for their public employees. As of fiscal year 2012, the largest of these long-term obligations was unfunded pension liabilities in 35 states, unfunded retiree health care costs in seven states, and public debt in eight states.

States pass balanced budgets each year, but some spending commitments that will not come due for years go unpaid. A snapshot of debt and unfunded retirement costs in fiscal 2012 shows totals of $915 billion in unfunded pension benefits, $757 billion in outstanding public debt, and $577 billion in unfunded retiree health care and other nonpension benefits.

States take on these obligations, which are paid over decades, for different reasons. Sometimes a state borrows to build infrastructure projects that deliver services for years in the future and may spur economic growth. When the bill comes due, states usually cover these debt obligations before other expenses. In other instances, a state creates unfunded liabilities when it sets aside less than is needed to cover the full retirement costs for public services already performed, shifting those expenses to future taxpayers. …