The long-term liabilities for state plans relative to personal income dropped for a fourth consecutive year, research from Fitch Ratings shows.
In the ratings agency's latest report on state direct debt and pension liabilities, long-term liabilities relative to personal income dropped to a median 5% for states' 2019 fiscal years, down from 5.7% in fiscal year 2018 and 6% in fiscal year 2017.
Fitch recorded the liabilities based on each state's individual fiscal year.
"The downward trend does not necessarily reflect an enduring drop in state burdens, especially for pensions," said Fitch Senior Director Doug Offerman in a news release announcing the research. "Instead, robust economic growth up to the coronavirus pandemic drove faster gains in personal income than in debt and pensions."
Meanwhile, median personal income by state grew 4.1% annually. Direct debt, which constitutes about 40% of long-term liabilities, remained relatively flat, at 2.1% of personal income in fiscal 2019, vs. 2.3% in fiscal 2018.
By contrast, net pension liabilities, adjusted by Fitch to a 6% investment return assumption, declined to 2.7% in fiscal year 2019, from 3.1% in fiscal year 2018, and has been volatile, driven by shifting market values for pension assets.
Although most states have reduced benefits, lowered return targets and increased contribution, Fitch noted that only a few states have seen lower pension liabilities.
"Over the four-year period, the dollar values of state direct debt, Fitch-adjusted pensions and personal income have all risen," Mr. Offerman said in an email. "But for purposes of calculating our burden ratio, personal incomes are rising faster than state direct debt and Fitch-adjusted pensions. So that's bringing the ratio down."
Five states still have long-term liabilities greater than 20% of personal income in fiscal year 2019: Illinois, Connecticut, New Jersey, Hawaii and Alaska. Pensions remain the driver of heightened liabilities for all these states. Meanwhile, 37 states carried burdens below 10% of personal income, which Fitch regards as low.