The latest data shows that North Carolina’s unfunded state pension liability has grown to $7.9 billion. This figure is likely highly understated, however, given the overly optimistic discount rate being used to calculate the liability. At any rate, the $7.9 B liability is a dramatic reversal from just 2005, when the pension plan actually had a $3 B surplus.
Some would argue that the growing liability is a result of “underfunding” the pension plan. But a new report from the Illinois-based research firm Wirepoints shows that it is indeed an overpromising of generous benefits causing the growing financial burden.
The real problem plaguing public pension funds nationwide has gone largely ignored. Most reporting usually focuses on the underfunding of state plans and blames the crises on a lack of taxpayer dollars.
But a Wirepoints analysis of 2003-2016 Pew Charitable Trust and other pension data found that it’s the uncontrolled growth in pension promises that’s actually wreaking havoc on state budgets and taxpayers alike. Overpromising is the true cause of many state crises.
To underscore their point, Wirepoints compares the growth in accrued state pension liabilities with the growth rate of the state’s economy between 2013-2016 for all 50 states.
For North Carolina, the total state GDP growth during those years was 66%, below the growth in accrued pension liabilities of 80%. The pension obligations are growing faster than the economy, and therefore the ability of taxpayers to support this growing liability.
One silver lining for North Carolina from this report, however, is the fact that NC’s economic growth during this time was tied for 16th best in the nation, higher than the US average, and higher than all other southeastern states (SC, TN, FLA, GA, VA). When calculated on an annualized basis, our ranking rises to 14th best in the country.
