By Bill Crawford
In January, credit rating agency Moody’s announced it would begin adding states’ unfunded pension liabilities to bond debt to calculate “total debt burden.” Using its new figures, Moody’s named states with the highest burdens, including Mississippi.
Moody’s also compared its new figures to states’ economic output or GDP. The state with the highest total debt burden to GDP ratio was Hawaii at 16.2 percent. Next was Mississippi at 15.9 percent. The national average was 6.5 percent.
Moody’s showed Mississippi in 2009 had $4.4 billion in bond debt plus $10.3 billion in unfunded pension liabilities for a total debt burden of $14.7 billion.
Why is the Moody’s change important? Moody’s will now factor in total debt burden when it gauges a state’s credit rating. States with higher burdens can expect lower credit ratings and increased costs to issue bonds.
Mississippi already makes annual principal and interest payments on bond debt totaling $361.4 million. That’s 8.25 percent of the General Fund budget. Payments are projected to rise by $23 million this coming year.
The Legislature passed what the Clarion-Ledger called “one of the largest bond bills in recent history,” authorizing $422 million in new debt. About $150 million will be added to the outstanding balance, generating more annual costs.
So, both bond debt and annual payments continue to head upwards.
What about the biggest part of “total debt burden,” unfunded pension liabilities?
Those have increased nearly every year since the Legislature ballooned benefits in 1999. From $2.4 billion in 2001, unfunded liabilities grew to $10.3 billion in 2009 (Moody’s figure), then jumped $1.3 billion to $11.6 billion in 2010.
The retirement system board has battled this trend with the only tool given it by the Legislature. For the main retirement plan (there are five), it has increased employer contribution rates four times since 2002, from 9.75 percent to 12 percent. Last year, the Legislature replaced another employer rate increase with a bump in the employee rate from 7.25 percent to 9 percent.
The system planned another employer rate increase to 12.93 percent this year, but agreed to a six-month delay pending legislative action. Actuaries have recommended the rate should go as high as 13.5 percent.
Gov. Haley Barbour says these rate increases cannot be sustained. Local governments and school boards agree; they have to pay employer contributions for their employees and teachers.
The retirement system clearly needs more tools to prudently reduce unfunded liabilities.
The Legislature got us here. It needs to get us out.
Bill Crawford is a syndicated columnist from Meridian. Contact him at 1124 Windmill Drive, Meridian, MS 39305 or firstname.lastname@example.org.