The current fiscal crisis has brought about renewed attention to the credit-worthiness of states and municipalities. While governments face significant challenges in crafting balanced budgets in the face of decreased revenues and increased needs, failure to address outstanding long-term obligations, such as debt, pension benefits, and OPEB pose significant risks to governments.
Based on RIPEC’s analysis, total debt outstanding plus total State and local pension and OPEB liabilities totals $19.9 billion, or 48.2 percent of all private-sector economic activity in the State in 2008. The reamortization of the State’s pension fund contained in the House’s FY 2010 supplemental budget proposal is projected to increase future costs by $2.2 billion according to House Fiscal Staff estimates. This would increase the estimated total outstanding obligations in the State by approximately 11 percent over the current liability. Similarly, delays in addressing OPEB liability will serve to increase future costs.
These two factors, combined with persistent budget gaps, and without significant structural change, may result in higher borrowing costs in the future. Ultimately, the total value of the State’s outstanding debt and long-term obligations, if unaddressed, will result in higher taxpayer burdens in the future.