By Patrick B. McGuigan
Oklahoma’s economy is growing. Despite some projected tightening in state revenues, the Sooner State remains among the nation’s healthiest. However, a new study of state-level debt in all 50 states provides sobering analysis that hints at imminent crisis.
The annual state debt report from State Budget Solutions (SBS) projects $5.1 trillion in state government debt across America — $16,178 per person.
Oklahoma is neither among the five worst nor the five best in public debt burden.
In the SBS analysis, the state’s debt is “only” $44,151,947,000 (most of that in unfunded pension liabilities), or $11,574 per capita.
The largest Oklahoma state government pension programs (including the public employees fund and the Teacher Retirement System) have in recent years performed well, at or near historic levels of 7 percent or more for returns on investments.
However, for purposes of its analysis, SBS assumes lower returns, based on national trends in the years since the onset of the Great Recession.
In response to the report, John Estus, spokesman for the state Office of Management and Enterprise Services, told Oklahoma Watchdog:
“No other debt issue Oklahoma faces holds a candle to the unfunded pension liability. Other than the pension liabilities, the vast majority of the state’s debt is within acceptable, conservative ranges and managed very responsibly.”
Estus serves as state Finance Secretary Preston Doerflilnger’s designee on the state Pension Commission.
Cory Eucalitto, author of the SBS analysis, told Oklahoma Watchdog that Oklahoma’s state’s debt “is equal to 27 percent of annual gross state product, and 314 percent of fiscal year 2012 general and other fund expenditures. These figures are generally in the middle of the pack as far as the rest of the states go.”
The comparatively below-average debt for Oklahoma, however, should not necessarily be a source of comfort to voters or state officials, Eucalitto said.
He observed, “At over $41 billion, unfunded pension liabilities are, by far, the largest contributor to Oklahoma’s debt.
Addressing this debt should include closing current defined benefit pension plans and putting employees into defined contribution alternatives, in order to protect taxpayers and employees alike.”
Legislation along the lines Eucalitto suggested has been under consideration at the Capitol. Legislative leaders, including state Rep. Randy McDaniel, R-Oklahoma City, will press for a new round of pension reforms in 2014. McDaniel was author of historic reforms enacted in 2011-12.
In an interview, Eucalitto continued, “Oklahoma’s $44 billion state debt should be front and center when the budget process heats up in the upcoming legislative session.
Officials should be wary of proclaiming fiscal responsibility before these issues, which are largely hidden from the public, are addressed.”
A leading taxpayer advocates’ group stressed the SBS report documents the need for fiscal vigilance.
“Reforms such as cutting taxes and shrinking government spending in order to halt the encroachment of government, especially in the economic lives of citizens must continue to be a top priority of Oklahoma policymakers,” said John Tidwell, director for Americans for Prosperity (AFP) in the state.
He told Oklahoma Watchdog, “By fighting proposed tax increases and pointing out evidence of waste, fraud and abuse we have a tremendous opportunity to bring the necessary attention to the problems associated with bloated government.”
Resurrecting language heard in Gov. Fallin’s 2010 campaign, Tidwell said his group wants to work with her, “state lawmakers and other elected officials to ‘right-size’ government in the upcoming session and beyond.”
According to the report, scheduled for national release Wednesday, Oklahoma is not the only state where public sector pensions are the driving factor in government debt.
In the SBS release, spokesman Brian Jodice noted that California is the national leader with $778 billion in state debt ($584 of that from pension liabilities).
The other top five states in total debt were New York ($388 billion), Texas ($341 billion), Illinois ($321 billion) and Ohio ($321 billion), according to the SBS analysis.
Bob Williams, president of State Budget Solutions, said in prepared comments that SBS has documented “$5.1 trillion dollars in broken promises, reckless leadership and fiscal irresponsibility. Breaking down the state debt totals reflects the alarming toll that reducing that debt may take on citizens, the local economy, and state budgets if lawmakers do not take drastic action. Fiscal changes are needed, and they are needed now.”