State Revenues Exceed Spending, But Pension Woes Persist

State revenues collectively exceeded expenditures in 2013 — the most recent year for which complete data is available — but that didn’t translate to widespread public pension health. In 30 states, public pensions still were underfunded despite the overall fiscal surplus.

The U.S. Census Bureau in its 2013 Annual Survey of State Government Finances reports that total state government revenue rose by 16.3%, from $1.9 trillion in 2012 to $2.2 trillion in 2013. Total expenditures for state governments were $2.0 trillion, an increase of 1.2% from 2012.

Nearly three-quarters of the increase (73.9%) is due to growth in insurance trust revenue, which grew by 89.7%, from $255.8 billion in 2012 to $485.2 billion in 2013, and is comprised mostly of pension systems state governments administer. These figures reflect the market value of investments; fluctuations in capital markets, and not just government fiscal policies, affect them.

The Census Bureau in its 2013 Annual Survey of Public Pensions, a census of all 231 state government pension systems and a survey of 3,761 local government-administered pension systems, says that contributions to state and local public employee pension systems also rose that year — by 7.2% from $143.4 billion in 2012 to $153.8 billion. Earnings on investments, which are affected by fluctuations in capital markets, rose 311.9%, from $93.1 billion to $383.3 billion. Employee contributions went up 4.2%, from $43.3 billion to $45.1 billion, while government contributions rose 8.5%, from $100.2 billion to $108.7 billion.

But these figures don’t necessarily mean that public pension funding issues are over. That’s even true in some states where fiscal gains were the most pronounced. For instance, North Dakota had the strongest growth in general revenues, jumping 14% in 2013 to $8.1 billion; nonetheless, its pension system remained underfunded. Even Illinois, famous for its public pension woes, saw revenue growth.

A report by the National Association of State Retirement Administrators (NASRA) may explain the disconnect. In “State and Local Government Spending on Public Employee Retirement Systems,” NASRA notes that state and local government pension benefits are paid from trust funds composed of contributions from employees and employers contributed, and not from general revenues.

CNBC on March 24 reported that a major factor behind public pension underfunding is how well those contributions are being made. CNBC said that just over half of the 150 plans the Boston College Center for Retirement Research tracked paid more than 90% of what is needed for benefits to be funded, and nearly one-third contributed less than that.

NASRA may have provided at least a partial explanation for that in another report. NASRA found that most states are making a good faith effort to meet their annual required contributions to their state pension systems, but that given the “perfect storm” of increased benefits in the late 1990s, followed by a decline in capital markets in 2000-2002 and a severe recession in 2008-2009, collectively, governments just have not been able to keep up.