Unfunded liabilities undermine budget progress

Tom Lampman Jul 07, 2015

Ohio’s new budget is a step in the right direction, but without pension reform this progress will be for nothing. A recent index of state budget solvency from the Mercatus Center provides a stark illustration of the need for reform. Ohio ranks well, relative to other states, but this is solely due to a stable short-term outlook. In the long term, unfunded liabilities present a threat to fiscal health that will overwhelm any short-term progress.

Each state is ranked based on total cash on hand, short-term budget solvency, and long-term unfunded liabilities. Ohio’s high ranking is due almost entirely to its cash solvency; the state has five to seven times the amount of cash on hand needed to cover short term spending, several times above the national average. In all other categories Ohio’s performance is middling to poor, with long-term solvency being especially dismal. Unfunded pension and healthcare liabilities total over $247 billion; more than half of Ohio’s total personal income, and a total eclipse of the budget surplus. While every state’s pensions perform poorly, Ohio ranks behind every state except New Mexico and Alaska.

Unfunded pension liabilities are a persistent, looming problem for Ohio. This report illustrates how Ohio’s short-term progress towards a responsible budget can be utterly overwhelmed by ballooning pension liabilities. Genuine, lasting fiscal health depends on more than bountiful cash reserves. More than anything else, it depends on meaningful pension reform.