Pension Systems Pushing Some States Toward Bankruptcy: Where Does Your State Rank?

Recently, we reported on the rapid collapse of pension systems, both public and private, across the United States. This is not only jeopardizing Americans’ retirement. Failing government pension systems are pulling several states down into a black hole with them.

When we talk about government debt, we tend to focus on the US national debt. But a lot of states are deep in the red as well. A George Mason University study highlighting the most bankrupt states reveals an interesting commonality – a pension crisis. Topping the list: California, Kentucky, New York, Connecticut, Massachusetts, New Jersey, and Illinois.

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The study ranked the states based on how well they can pay their short-term bills, their budgets, their ability to meet future commitments, their ability to accommodate an increased demand for services, and their debt levels. In all, 30% of US states received low or poor grades. These states have little cash on hand to cover short-term bills, struggle to balance their budgets, and are burdened by unsustainable long-term expenses.

The states in the worst financial shape also share the problem of underfunded pensions. Illinois, Connecticut, and Kentucky actually have less than half of their pension obligations funded. According to a Pew Research report released last year, state pension systems overall are short $968 billion. When you included debts from local programs, the number eclipses $1 trillion. The impending collapse of the country’s pension systems is not only turning many Americans’ retirement dreams into nightmares, it is also jeopardizing the country’s economic stability.

In fact, the extreme debt load in America today is one of those underlying economic fundamentals that simply can’t be ignored. These nearly bankrupt states serve as a vivid reminder of the impact of debt – personal, corporate, and national. It is the giant elephant in the room that is eventually going to rampage.

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