Public Pension Perversion

The First 11 State Pensions Funds That Will Run Out of Money

October, 18, 2010

Business Insider - Here's a shocker: The most immediate state pension crises aren't in New York or California. They're in Middle America.

When it comes to state pensions in the most trouble, do places like New Hampshire come to mind? Probably not, unless you live there, and maybe not even then.

After all, it makes sense that the biggest, most populous members of the union, where budget follies are fairly common, would be facing the most urgently needed fixes. The truth is considerably different. The Granite State claims the No. 11 slot, and it's not the only unexpected name facing pension woes.

Hawaii, Kansas and others made their way on to the list. Now, these pension plans aren't going to be obliterated tomorrow -- New Hampshire, for instance, is estimated to see its plan run out of money in 2022, so they've got 12 years to rectify the situation.

For some other states, the matter is more pressing, and no more so than for the Land of Lincoln.

Illinois is just 8 years away from exhausting its pension fund and creating a yearly $14 billion hole, according to data from Joshua Ruah an associate professor of finance at the Kellogg School of Management at Northwestern University.

That's a projected 32 percent of the state's revenue going to fill a pension hole. Every year.

Indiana, Louisiana, Oklahoma and Colorado are among the next pension funds to fall. The rest of the union is just around the corner.

But wait. Just to make sure the list is not a complete surprise, know that the New York City suburbs of Connecticut and New Jersey made it on board. They have until 2019 to sort it out.

And Now, 11 State Pension Funds That May Run Out of Money

#1 Illinois
Year pension fund runs out: 2018
Bill in the following year: $13.6 billion
Share of state revenue: 32%

#2 Connecticut
Year pension fund runs out: 2019
Bill in the following year: $4.9 billion
Share of state revenue: 27%

#3 Indiana
Year pension fund runs out: 2019
Bill in the following year: $3.6 billion
Share of state revenue: 17%

#4 New Jersey
Year pension fund runs out: 2019
Bill in the following year: $14.4 billion
Share of state revenue: 34%

#5 Hawaii
Year pension fund runs out: 2020
Bill in the following year: $1.7 billion
Share of state revenue: 24%

#6 Louisiana
Year pension fund runs out: 2020
Bill in the following year: $4.3 billion
Share of state revenue: 27%

#7 Oklahoma
Year pension fund runs out: 2020
Bill in the following year: $3.7 billion
Share of state revenue: 30%

#8 Colorado
Year pension fund runs out: 2022
Bill in the following year: $7.8 billion
Share of state revenue: 54%

#9 Kansas
Year pension fund runs out: 2022
Bill in the following year: $2.5 billion
Share of state revenue: 23%

#10 Kentucky
Year pension fund runs out: 2022
Bill in the following year: $5.3 billion
Share of state revenue: 35%

#11 New Hampshire
Year pension fund runs out: 2022
Bill in the following year: $1.0 billion
Share of state revenue: 30%

Now here's when the other funds run dry...

2023: Alabama, Michigan, Minnesota and Mississippi
2024: Maryland, Pennsylvania, South Carolina and West Virginia
2025: Missouri
2026: Maine, Massachusetts and New Mexico
2027: Montana and Rhode Island
2028: Vermont
2029: Arizona
2030: Arkansas, California, Ohio, Wyoming
2031: South Dakota
2032: Nebraska
2033: Virginia, Washington
2035: Delaware, Iowa, Tennessee
2036: Utah
2037: Texas
2038: Wisconsin
2039: Oregon
2041: North Dakota
2043: Idaho
2047: Georgia

Never: Alaska, Florida, Nevada, North Carolina and New York

Projections include 8% y-o-y growth in benefits and 3% y-o-y growth in revenue, from Kellogg professor Joshua Rauh [PDF].

But the municipal crisis is even more imminent.

The municipal pension crisis is like the social security crisis but worse: Unlike the federal government, cities cannot legally go into debt.

This imminent disaster is described in a new paper out by Robert Novy-Marx and Joshua Rauh [PDF].

Novy-Marx and Rauh say most cities are burdened with unfunded liabilities, which are ignored by common accounting methods (see chart). Unfunded liabilities equal around $15,000 per household nationally, and up to $41,000 per household in some cities.

These cities are running out of money and will have to raise revenue or cut benefits to stay solvent.

#10 Fort Worth
Unfunded liability: $2 billion
Unfunded liability per household: $7,212
Solvency horizon: 2023

#9 Detroit
Unfunded liability: $6.4 billion
Unfunded liability per household: $18,643
Solvency horizon: 2023

#8 Baltimore
Unfunded liability: $3.7 billion
Unfunded liability per household: $15,420
Solvency horizon: 2022

#7 New York City
Unfunded liability: $122.2 billion
Unfunded liability per household: $38,886
Solvency horizon: 2021

#6 Jacksonville
Unfunded liability: $4 billion
Unfunded liability per household: $12,994
Solvency horizon: 2020

#5 St. Paul
Unfunded liability: $1.4 billion
Unfunded liability per household: $13,686
Solvency horizon: 2020

#4 Cincinnati
Unfunded liability: $2 billion
Unfunded liability per household: $15,681
Solvency horizon: 2020

#3 Boston
Unfunded liability: $7.5 billion
Unfunded liability per household: $30,901
Solvency horizon: 2019

#2 Chicago
Unfunded liability: $44.8 billion
Unfunded liability per household: $41,966
Solvency horizon: 2019

#1 Philadelphia
Unfunded liability: $9 billion
Unfunded liability per household: $16,690
Solvency horizon: 2015

These cities are also facing pension apocalypse:

2024: Seattle
2026: Dallas
2027: Houston, Los Angeles, Miami, San Jose
2028: Memphis, Milwaukee
2031: Tacoma
2032: San Francisco

Don't see your city on the list? It may be among the 33% of big cities not included in this survey (sorry).

But the municiple crisis goes beyond pensions.

Municipal pain is at its worst level on record, according to annual report from the National League of Cities.

Revenue is 3.2% lower than last year, which was already at record lows. It may get worse next year as property taxes decline to reflect fallen property values.

Cutbacks in government spending are also at record levels.

The fiscal bloodshed you hear about in Los Angeles and New York -- not to mention state governments -- is probably taking place in your home town.

Click here to see charts of the carnage...