Will Pensions and OPEBs Break State and Local Budgets?

The costs of state pension plans are much in the news. Generally, people lump together these unfunded liabilities and make alarming claims that all state plans are about to go bankrupt. The evidence, though, suggests otherwise. On the other hand , looking just at pension plans and just at states doesn’t give the full picture of costs facing states and localities. This brief, based on a recent paper, provides a comprehensive accounting of state and local government liabilities for pensions and other post-employment benefits (OPEB) and the fiscal burden that they pose. In accordance with new accounting guidelines, t he analysis apportions the relevant liabilities of state-administered cost-sharing plans to local governments for a more accurate picture of where the burden lies. It also includes debt service costs to provide a full picture of government revenue commi tments to long-term liabilities. To gauge the level of the burden, pension, OPEB, and debt service costs are compared to each jurisdiction’s own-source revenue. The discussion proceeds as follows. The first section describes the scope of the analysis. The second section explains the methodology used for calculating the costs and choosing the revenue base. The third section presents the results for states, countie s, and cities. The final section concludes that the outlook at the state and local level is extremely heterogeneous; a small minority face dire circumstances, but many jurisdictions appear to have their costs under control.