Alaska #1 for Unfunded Liability

September 20, 2013

Lets start with a definition; an unfunded liability is the amount owed for future payment obligations that exceed the present value of funds available. For example, a pension’s obligation could include all income, termination and death benefits owed. Compare that number to the plan’s current investment holdings and if the total obligations surpass the projected assets, the plan has an unfunded liability.  Now the issue at hand.

Alaska is #1 for unfunded liabilities per capita, with each person holding a value of $32,425 in the unfunded liability conversation.  The current unfunded liability comes to a whopping $23.7 billion, placing fifth position for most dangerous pension funds within the US. This pension program is only 30% funded and puts the state in a precarious situation. Currently, Alaska state government will need/have to make up that 70% difference through taxes, reducing our PFD, or the like.

Normally unfunded liabilities are talked about in terms of state spending and gross state product, so lets define them both. Gross state product is the measurement of economic output of a state, or the sum of value added by industries. In Alaska, 46% of the gross state product is unfunded liability. On the spending front, Alaska also takes 1st place in total state expenditures per capita (per person) at  $19,603/year. Alaska spends over $19,000 for every man, woman and child in a state with over 700,000 people in it.

Let’s put all of this information in simpler terms for everyone. The state of Alaska creates a value for itself every year through any number of opportunities. Also every year, the Alaskan government spends X amount of dollars on the promises it has made. As of today, Alaskan total state expenditures are around 154% of what the state produces. Seems that Alaska has a serious spending problem and we’re creating a debt future generations will have to pay. How many generations or groups will have to pay in the future, for spending that’s happening now?

 

Great information can be found @ State Budget Solutions

Source: SBS

Like this post? Chip in $5 to AFP