States’ revenue not keeping up with costs, report says

U.S. state revenue isn’t rising fast enough to keep up with the cost of funding pensions, health care and public works projects, underscoring financial strains that persist during the economic recovery, according to a report. More

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pension reform

States’ revenue not keeping up with costs, report says

Posted 1/15/14

WASHINGTON – U.S. state revenue isn’t rising fast enough to keep up with the cost of funding pensions, health care and public works projects, underscoring financial strains that persist during the economic recovery, according to a report.

Paying for worker benefits is taking money from schools and other needs, according to the report, issued Wednesday by a privately funded panel of budget specialists led by former Federal Reserve Chairman Paul Volcker and ex-New York Lieutenant Governor Richard Ravitch.

“It’s great our economy is turning around,” Ravitch, co-chairman of the group known as the State Budget Crisis Task Force, said in an interview. “But it isn’t turning around fast enough to make up for all the liabilities that were issued, all the promises that have been made.”

State tax collections have been rising for the past three years as the economy revived and stock prices climbed, erasing budget shortfalls that forced spending cuts after the 18-month recession that ended in June 2009. The stability has allowed states to make up for cuts to schools and other programs or lower taxes.

State and local governments have made their finances appear better than they are by counting borrowed money as revenue, shifting expenses between years and putting off required pension payments, Ravitch said. His group called for an end to such methods, as well as greater disclosure requirements for state and local governments that raise money by selling bonds to investors.

Unfunded liabilities

States are still confronting unfunded liabilities for employee pensions and health care because of investment losses or the failure to set aside enough to pay for future expenses. Since the recession, state pensions have slipped deeper behind, with the median having 69 percent of what they need to fully meet their obligations by 2012, down from 83 percent five years earlier, according to data compiled by Bloomberg.

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