Committee Examines State Debt & Liabilities: Outlook is Grim

Today the House Select Committee on Legacy Costs from the State Health Plan, Pensions and Employment Security Commission met to discuss the financial condition of those programs. The outlook continues to be grim. Among the findings discussed:

• State debt is in excess of $7 billion (and that is not counting required interest payments), and state taxpayers paid more than $700 million in this year’s budget to service the debt (an amount that has more than triped since 2000)
• North Carolina still owes $2.5 billion to the Federal Government for money we borrowed to cover unemployment insurance benefits. We’ve already paid about $165 million in interest payments alone in the last 15 months. State lawmakers still have no plan on how to repay this debt. The chosen plan of action thus far has been to allow the federal unemployment tax on NC companies increase in order to repay the debt. At the current rate, this loan will be repaid by 2019, and the federal unemployment tax will have risen to 2.4% – or four times the rate before the loan was taken out.
• The state pension plan for retired state workers has an unfunded liability of $3.7 billion – and this is even using the unrealistically rosy projected average returns of 7.25%. State taxpayers contributed nearly $840 million last year to help prop up the pension fund.
• North Carolina has $29.6 billion in long-term unfunded liabilities for state retiree health insurance benefits. This liability is projected to exceed $45 billion within ten years at its current trajectory. Taxpayers paid about $800 million this year to finance these benefits. NC’s per capita unfunded liability is 9th highest in the nation.

All told, North Carolina’s state debt and liabilites total nearly $43 billion – and that doesn’t factor in interest payments on the debt. Depending on the estimate you use, there are roughly 4 to 4.2 million working North Carolinians. Our state debt and liability total works out to nearly $10,500 for every worker in the state (and this estimate is low because it doesn’t include interest payments on the debt). This also doesn’t include debt and liabilities of local governments across the state.

Clearly, something needs to be done. I address reform options for the state pension and health plan in great detail in this series of articles.