Pension Crisis: Do You Know Your State's Pension Expense Ratio as a Percentage of State Revenue?

CAPERS (California Public Employees’ Retirement System) posted a profit of just 2.4% for its fiscal year that ended on June 30, 2015, which was well below its 7.5% investment target. So? California is illustrating the “clear and present crisis” emerging in state pensions. For California, every $1 of state revenue, approximately $.62 goes to pay state pensioners. For Illinois, every $1 of state revenue, approximately $2.41 goes to pay state pensioners.

According to Moody’s “Adjusted Pension Liability Medians for U.S. States,” the median pension expense as a percentage of state revenue is 45.1%. The mean is 60.6%.

Why is this state pension crisis happening?  State pension plans usually expect to earn 8% on their bond portfolios, not the 2.4% like California. State pensions will continue to rise, crowding out current state expenditures. The consequence is that individuals will see their taxes increase, which will destroy their state economies. We are already seeing this in California, Illinois, and even Texas. My advise is to leave any state (if you can, or pay the pending consequences) that has a “pension expense ratio to state revenues” greater than 50%, because your taxes (state income taxes, property taxes, sales taxes, etc.) are definitely going to rise going forward. (See the following list of states that delineates their pension expense ratio, which is provided by Moody’s.) By the way this analysis pertains to state pensions, not cities, which are in a more dire economic strait when it comes to pension expenditures.

Moody’s Adjusted Pension Liability (ANPL) as % of Revenues

1        Illinois 241.1%

2       Connecticut 189.7%

3        Kentucky 140.9%

4       New Jersey 137.2%

5       Hawaii 132.5%

6       Louisiana 130.2%

7       Colorado 117.5%

8       Pennsylvania 105.0%

9       Massachusetts 100.4%

10    Maryland 99.5%

11    Texas 92.5%

12    Rhode Island 91.3%

13    West Virginia 86.2%

14    Maine 76.6%

15    Montana 62.5%

16    California 61.8%

17    Oklahoma 61.8%

18    Indiana 61.3%

19.   North Dakota 61.2%

20.   South Carolina 59.7%

21.   New Hampshire 56.4%

22.   Alaska 55.2%

23.   Mississippi 53.0%

24.   Vermont 49.2%

25.   Delaware 48.2%

26.   Georgia 42.0%

27.   Wyoming 39.9%

28.   Nevada 39.1%

29.   New Mexico 37.8%

30.   Alabama 36.9%

31.   Virginia 35.5%

32.   Oregon 33.9%

33.   Arkansas 33.6%

34.   Washington 32.7%

35.   Utah 30.8%

36.   Missouri 27.7%

37.   Minnesota 27.3%

38.   Arizona 26.7%

39.   Michigan 25.4%

40.   Kansas 23.1%

41.   South Dakota 20.7%

42.   Ohio 19.6%

43.   Tennessee 19.2%

44.   Florida 19.2%

45.   North Carolina 18.3%

46.   New York 16.6%

47.   Iowa 16.1%

48.   Idaho 14.8%

49.   Wisconsin 14.4%

50.   Nebraska 6.8%

MEAN: 60.6% MEDIAN: 45.1%