State News Roundup

News Roundup | June 7, 2012

The U.S. Bureau of Economic Analysis reported the economic growth statistics by state for 2011 this week, leading some to question the health of state economies across the nation. While a majority of states continue to recover, growth has slowed since 2010. The U.S. GDP by state grew by just 1.5 percent in 2011 compared to 3.1 percent growth in 2010. Six states’ (Maine, New Jersey, Alabama, Mississippi, Wyoming, and Hawaii) economies shrank and 41 states still have GDP lower than their pre-recession numbers.

California residents in San Jose and San Diego passed pension cuts to bring their cities back to fiscal solvency. Underfunded pension plans with cost-of-living adjustments became too much for the cities to handle after investments in the stock market did not maintain high yields during the recession. Alicia H. Munnell, former economic adviser for Bill Clinton, said this vote is just a “harbinger of things to come” because governments need more flexibility to solve pension-funding problems. Pensions in San Diego for some city employees included retirement after 30 years of service with 90 percent of pay for life, while private sector pensions in the city are more rare. Changes to the pension plans require either a higher contribution – up to 16 percent of salary – or a lower percentage of pay in retirement with a higher retirement age. Unions representing the employees filed a lawsuit to prevent the cuts, and city officials filed their own motion to declare the cuts constitutional.

While California’s cities take action to rein in their pension liabilities, other states are addressing pension problems as well. Illinois is dealing with the nation’s largest unfunded pension liability and faces a credit rating downgrade if it does not get its fiscal house in order soon. Rhode Island is considering cutting pension benefits for public workers, and Massachusetts and New York rose the retirement age to cut costs.

Click here to find our recent blog on Illinois’s growing fiscal crisis.


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