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Don’t Assume State Fiscal Health Spells Pension Solvency

States’ fiscal conditions are as varied as their topography: Some are in good shape, but others not so much, to put it mildly. But despite those differences, the states all share long-term challenges regarding public pension benefits, says a study by George Mason University’s Mercatus Center.

“Ranking the States by Fiscal Condition” examines a variety of aspects of states’ fiscal health and finds that there is great variation from state to state. In the best shape, in ascending order: Florida, Nebraska, South and North Dakota, and Alaska. Their converse, in descending order: New York, Connecticut, Massachusetts, New Jersey, and last of all, beleaguered Illinois.

There’s plenty of good news for some states. The Dakotas fare especially well. South Dakota is 3rd in cash solvency, 5th in long-run solvency and 3rd in service-level solvency, and its pension system is fully funded. North Dakota ranks 7th in cash solvency, 2nd in budget solvency and 10th in long-run solvency. Its unfunded pension liability amounted to 20% of state personal income, below the national average.

Still, measures of fiscal success don’t necessarily mean that a state that is flush with cash and fiscal discipline is free of public pension challenges.

For instance, the report ranks Florida 2nd in cash solvency, 5th in budget solvency and 4th in service-level solvency. Its pension plan is 85% funded, but when its pension liability is calculated on a guaranteed-to-be-paid basis, its unfunded pension liability amounted to $155 billion and was 46% funded. And Ohio ranks 7th for overall fiscal health, but its unfunded pension obligations amount to just over half the state income, almost twice the national average.

An even starker contrast: Alaska, which is at the top in cash and budget solvency and in second place in long-run solvency. It’s in such good shape in some respects that the report calls it an “outlier.” Nonetheless, it also ranks dead last in service-level and trust fund solvency.

Translation: Alaska is going to face big challenges fulfilling its pension obligations. Proof: Alaska’s unfunded pension liabilities amount to 67% of state income, more than twice the national average. And it doesn’t stop there for the Last Frontier: The state’s unfunded pension liability is $8.7 billion, with a market value of almost $25 billion. Not only that, Alaska’s pension system is closed, which the study argues reduces Alaska’s long-term challenges but poses short-term trouble.