If a friend asks for $16,000 so that they can pay off a debt, how do you react?
Chances are you think that is a lot of money, and you question how they got into that kind of debt in the first place. Moreover, it's likely that you tell your friends that they must find another way out of debt.
Now think about what happens if your state lawmakers ask you for $16,178 to get out of debt.
The State Budget Solutions' fourth annual State Debt Study finds that states are drowning in debt that amounts to an average of $16,178 per capita, or $5.1 trillion when you add up all the states.
If you live in Alaska, the news is even worse. State debt in the Last Frontier works out to more than $40,000 per capita.
Congratulations to folks in the Volunteer State! Tennessee has the lowest per capita debt at $6,358.
Just like the friends who ask you for the money, you're probably wondering just how your state dug itself into such a deep hole.
Turns out that it takes years and years of bad choices to amass such a debt, and much of it can be traced to public pensions. Specifically speaking, $3.9 trillion of the $5.1 trillion in state debt is due to unfunded public pension liabilities.
Knowing that a ridiculously large chunk of the state debt is attributable to state pensions is helpful because lawmakers cannot stop the bleeding until they know the source. It should come as no surprise that many elected officials paint a different picture than what the State Budget Solutions' Debt Study reveals.
Do the government's figures include unfunded pension liabilities, as any sensible financial economist would value them? Other post-employment benefits owed to retired public employees? Outstanding unemployment trust fund loans? Probably not. States Budget Solutions' research, however, combines these factors with primary government outstanding debt to determine a comprehensive total -- $5.1 trillion across the board.
Citizens should be outraged at the amount of debt states face. But they should be exceptionally bothered that officials tell them they balanced the budget when they very clearly have not.
Ignoring the fiscal reality of the unfunded pension liabilities that states will one day have to pay completely undermines public employee retirement security and demonstrates a willingness on the part of officials to kick the can down the road, saddling our children and future generations with astronomical costs.
The State Debt Study's revelation that state debt totals more than $16,000 per capita is a much-needed wake up call. The time for action is now.
While defined benefit plans remain in place, lawmakers must guarantee that the state will make its annual required contribution to the pubic pension system(s) in the state. They also need to enact meaningful reform that includes shifting to defined contribution plans so that public pensions more closely mirror the 401(k) plans that the vast majority of private employees have.
Our leaders must take action and fix this problem before the state comes to us asking for help paying off the debt, and they must do it now.
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Bob Williams is the President of State Budget Solutions and a former Washington state legislator.