Businesses Should Fear States’ Pension Debts

NCPAFrom the NCPA:

In late June the ratings agency Moody’s issued a report recalculating states’ pension debts using more conservative metrics than the states themselves apply, says Steven Malanga, an editor for Real Clear Markets and a senior fellow at the Manhattan Institute.

  • Whereas states claim they’ve funded about 74 percent of the promises they’ve made to workers, Moody’s found that the median pension funding of states was just 48 percent of the money needed to pay off those promises.
  • Moreover, 10 states had pension debt equal to 100 percent or more of their current annual revenues.

Governments are now in unprecedented territory with the pension mess, and it’s not clear how it will all play out. As the Moody’s report suggests, there’s not even a consensus on how much states owe.

Businesses should see this as a warning, as they are a convenient target for politicians looking to stem the rise in taxes on individuals, and also moderate the cuts to basic services prompted by rising retirement costs. Indeed, some businesses are starting to figure out that their decisions on where to expand, relocate or otherwise invest their resources have to take into account the staggering debts that some states and cities have accumulated, especially since the retirement debt burden is not dispersed equally across the country.

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