Mariana Trujillo, Author at Reason Foundation

San Diego’s government needs more competition, not more taxes

Mariana Trujillo — Wed, 03 Dec 2025 11:00:00 +0000

San Diego’s rising pension costs and mounting long-term debt are creating significant budget pressures that have city officials turning to tax and fee increases, such as the recently imposed trash fee on many San Diego property owners.

San Diego’s $2.5 billion unfunded pension liability accounts for about 40% of the city’s total $6.8 billion debt. In the 2024 fiscal year, the city paid about $500 million in pension contributions, nearly 60% of which goes toward paying down pension debt. With unfunded pension liabilities and the city facing $540 million in forecasted budget deficits in the coming years, it has imposed a wave of unpopular taxes and fees on solid waste, parking, hotel stays, and more. Today, it is more than justifiable for taxpayers to question whether local leaders have given sufficient consideration to spending reductions and service streamlining relative to raising taxes and fees.

San Diegans felt similarly in 2006 when they passed Proposition C, authorizing “managed competitions” in which private companies would compete against city workers to reduce costs and increase innovation in delivering city services.

Managed competition can be transformational, generating cost savings of 5% to 20%. This technique has been successfully implemented in numerous states and cities, including Phoenix, Charlotte, and Indianapolis.

Former Indianapolis Mayor Stephen Goldsmith told Governing that the robust managed competition program implemented during his terms in the 1990s created over $400 million of value for city taxpayers. In Florida, former Gov. Jeb Bush’s administration conducted more than 100 managed competition initiatives that saved taxpayers more than $550 million.

But managed competition requires leadership committed to driving ongoing improvements, results and value. Politics and special interests can make managed competition challenging to sustain over time, as happened in San Diego.

City leaders didn’t fully embrace the managed competition effort, dragging out its implementation for years. Then they tended to give public employees special treatment relative to private firms regarding their cost estimates to deliver services, projections of future service demand, and the ability to penalize underperformance. It wasn’t a level playing field for private firms, and the city wasn’t pushing for efficiencies from government agencies. Rather than build the capabilities to improve these things, San Diego stopped trying.

From a taxpayer perspective, it is time to give competition another chance.

The rising costs of residential solid waste are a prime example. The private sector already picks up 70% of San Diego’s solid waste from businesses and apartments, with the city’s solid waste operation collecting the remaining 30% from single-family neighborhoods and multiplexes. The city’s costs have gotten so high that it is imposing a new solid waste tax on homeowners. San Diego did not see fit to test the market with the private firms that perform the same job in surrounding cities at significantly lower costs.

Phoenix has been applying managed competition in residential solid waste collection since 1979, dividing the city into zones and competing trash service in each zone every six years. In 2011, Phoenix’s Public Works Department told Government Technology that competition had generated $38 million in cumulative savings to that point.

San Diego’s leaders owe it to taxpayers to test the market and ensure that city workers are performing their jobs at maximum efficiency and at the lowest possible cost. Frustrated San Diegans rightfully wonder why the city didn’t implement this approach instead of raising taxpayers’ costs with the trash fee while continuing to do business with the same city employees. Worse, city officials are executing this implicit city job protection program at a time when every worker hired is adding significant costs and financial risks to San Diego’s already underfunded pension system.

Two decades ago, San Diego’s financial mismanagement earned it the moniker “Enron-by-the-Sea” and prompted taxpayers to demand procurement and pension reforms to save money. But as things improved over time, the city abandoned competition. And after state courts blocked a pension overhaul approved in a landslide in 2012, elected leaders ignored residents’ wishes and made no effort to craft a similar reform.

Instead of asking taxpayers to pay more taxes and fees to cover the city’s spending and debt, San Diego should give managed competition a fair chance to see if government agencies can improve efficiency or if the private sector can deliver better services at lower costs.

A version of this column first appeared at The San Diego Union-Tribune.

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State and local governments are drowning in debt

Mariana Trujillo — Mon, 01 Dec 2025 11:00:00 +0000

The national debt recently surpassed $38 trillion, but America’s debt crisis isn’t limited to the federal government. Less well known is that, nationwide, state and local governments now hold more than $6.1 trillion of their debt.

States owe $2.7 trillion in debt, cities hold $1.4 trillion, school districts have $1.3 trillion, and counties owe $760 billion, according to a review by Reason Foundation of more than 20,000 financial statements filed by government entities for their 2023 fiscal years, the most recent period with complete data available.

In total, California’s state and local governments hold $1 trillion in debt, the highest in the nation. New York’s state and local debt is the second-most, at $800 billion, followed by Texas at $550 billion, Illinois at $410 billion, New Jersey at $310 billion, and Florida at $240 billion.

Additionally, Massachusetts, Pennsylvania, Ohio, Washington, Michigan, Georgia, Maryland, Connecticut, North Carolina, and Colorado each have more than $100 billion in state and local government debt.

On a per-capita basis, the state and local debt numbers are even more eye-opening, with states like Hawaii, Delaware, and Wyoming having surprisingly large debt loads per resident.

Nationally, state and local government debt amounts to about $18,400 per person. In New York, Connecticut, New Jersey, Illinois, and Hawaii, state and local debt exceeds $30,000 a person.

Following them are Massachusetts, California, Alaska, North Dakota, Delaware, Wyoming, and Maryland, all of which have state and local liabilities in excess of $20,000 per resident.

Over 40 percent of state and local government debt consists of unfunded pension and healthcare benefits promised to public workers. State and local pension debt amounts to $1.5 trillion, with an additional $1 trillion in healthcare benefits promised to retirees.

The bonds that governments issue to fund infrastructure projects, such as roads and bridges, to build and upgrade schools, and to pay for other programs, represent an additional 33 percent of all state and local debt.

These debts have three negative consequences for taxpayers. First, the annual interest costs and debt payments are starting to crowd out essential services. Many local governments are already being forced to divert funds from taxpayers’ priorities, such as education, policing, and transportation, to pay for promised public pension benefits that they haven’t set aside the necessary money for.

Second, as governments struggle to cover rising interest and pension payments, some politicians will seek to raise taxes and fees, placing a growing burden on taxpayers. The scale of tax increases needed to pay for these public pension debts could also hinder economic activity within communities, reducing revenues and further increasing debt woes.

Third, current levels of debt weaken long-term balance sheets, harming the future. Some cities and states haven’t borrowed or spent wisely, so they’ll be looking to borrow more money to modernize their infrastructure, schools, and technology in the years ahead. However, today’s debt burden will make borrowing more expensive and potentially raise the interest rates on new bond issuances, costing taxpayers even more.

To address this mountain of debt and restore fiscal stability, state and local governments must sustainably align spending with revenues. In years with a robust economy, governments should use budget surpluses to pay down debt rather than funding new or existing programs.

For mega-infrastructure projects, such as major highway and bridge repair, replacement, and expansion, public-private partnerships can be used, allowing the private sector to bear the initial construction costs and any overruns, rather than taxpayers.

Ultimately, the most significant drivers of state and local debt are pensions and retiree healthcare benefits, which must be reformed to ensure they are fully funded and prevent the accrual of debt.

State and local governments have far less ability to keep piling up debt the way the federal government does. The bill is coming due, and cities and states that pay down debt quickly and right-size government will be best positioned for the future.

A version of this column first appeared at The DC Journal.

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Connecticut’s pensions shouldn’t make political investment in WNBA team

Mariana Trujillo — Wed, 26 Nov 2025 11:00:00 +0000

Connecticut Gov. Ned Lamont has floated a plan to use state pension assets to purchase a stake in the Women’s National Basketball Association’s (WNBA) Connecticut Sun and keep the team from moving to Boston. Saving a local team may be good politics, but it is bad finance that would put taxpayers at risk.

Connecticut’s $60 billion Retirement Plans and Trust Funds exist to fund the retirement benefits promised to public workers, not to serve as a bailout vehicle for a professional sports franchise or to promote Connecticut’s economic development.

Gov. Lamont’s efforts to keep the Connecticut Sun in the state come as a Boston-based private equity group led by Celtics minority owner Steve Pagliuca reached a $325 million deal to buy the team and relocate it to Boston in 2027, pending league approval.

Connecticut’s state and local governments have recently made an impressive fiscal recovery after decades of budget neglect. The adoption of spending guardrails and mechanisms that enabled surplus pension contributions has stabilized finances, reduced bonded debt, improved pension funding, and led to credit rating upgrades. But recent fiscal improvements are no excuse for pursuing pension investments for political symbolism rather than financial merit.

The state’s fiscal job is unfinished: Connecticut still ranks second in the nation in terms of per-capita public employee debt (which includes unfunded pension and retiree healthcare liabilities). Furthermore, the state’s pension trust—which calculates contributions presuming a 7% annual return—has earned an average return of just 5.7% over the past 24 years (2001-2024), while the S&P 500 returned 10.6% over the same period, according to the Reason Foundation’s 2025 Annual Pension Solvency and Performance Report.

If the goal of this proposed investment in the Connecticut Sun were to maximize investment returns, it wouldn’t have been paraded in such a manner. A financially motivated investment is one where Connecticut’s pension funds would be comfortable selling at any time deemed advantageous; it is one where the state feels comfortable advocating for management decisions that benefit the team the most, which could very well mean moving out of Connecticut.

In fact, politically motivated investment harms not only the state’s pension plans but also the Connecticut Sun itself. The team would be better off with investors who are genuinely interested in its success, rather than ones whose primary goal is merely to retain the team in a particular geographical location, even if that is not conducive to the team’s ability to compete and win.

Sports teams can be great investments if managed correctly, but the upside comes with a delicate bundle of risks. Professional sports franchises are relatively illiquid, with valuations that fluctuate depending on revenue trends, media rights, and local market conditions. Future exit prospects are also limited, because—unlike an investment in a publicly traded company—only so many people/institutions are willing and able to buy a professional sports team.

If the Connecticut Sun turned out to be a bad investment for the state’s pension plan, public employees in the plan would likely not bear the harm: they are still guaranteed their retirement benefits regardless of investment outcomes or cost increases. The risk instead falls on taxpayers, who must cover any funding gap in the pension fund through higher property, income, and sales taxes.

Connecticut’s pension funds are fiduciary funds established to fund retirement obligations while avoiding unnecessary risk, not a piggy bank for pet political projects. Any sports investments, like all other pension fund investments, must be evaluated on a single criterion: maximizing risk-adjusted returns for beneficiaries and taxpayers.

A version of this column first appeared at The Connecticut Mirror.

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Most public pension contributions go toward paying off debt, not funding benefits

Mariana Trujillo — Tue, 18 Nov 2025 11:30:00 +0000

State and local governments have been making higher pension contributions to their employees’ pension funds, but not because public pension benefits have become more generous. Instead, growing debt from past underfunding of pension benefits has largely driven the increase in contribution rates. Today, the majority of contributions made to public pension systems go toward amortizing unfunded liabilities rather than funding the benefits promised to current employees.

One way to evaluate the burden of pension contributions is to measure their size in comparison to payroll. Between 2014 and 2024, average pension contributions by state and local governments rose from 23% to 29% of payroll—a 26% increase, Reason Foundation’s Annual Pension Solvency and Performance Report finds.

Differences among states

The median pension contribution rate as a share of payroll in 2014 was 22%; in 2024, it was 26%.

Among states, New Jersey saw the highest increase during these 10 years, 28.5 percentage points, with the aggregate contribution rate going from 13.5% to 42%. Alaska’s 28-point increase, from 41% to 69%, was the second largest, followed by Wisconsin (+25 percentage points), Kentucky (+18), Connecticut (+15), and California (+15).

In eight states, however, thanks to some combination of fiscal discipline, additional pension contributions, strong financial returns, and successful pension reforms, pension contributions as a share of payroll actually decreased between 2014 and 2024, including West Virginia (-7.7 percentage points), New York (-6.4), and Indiana (-3.1).

Some of the observed increases in contribution rates may actually reflect fiscal prudence, not recklessness. States that have made either one-time or ongoing additional contributions to their pensions—such as Connecticut, West Virginia, and Alaska—will have higher contribution rates in the years those additional payments are made. These payments accelerate the amortization schedule and cut decades of interest costs, generating long-term savings. In subsequent years, as their debts are paid off, their required contribution rates should decline.

Amortization rises while normal cost stays stable

One might assume that the long-term nationwide increase in pension contribution rates is a result of public employee pensions becoming more generous. That is not the case. Instead, larger contributions have been needed to compensate for past underfunding—that is, to make up for decades of underestimating the true cost of providing the pensions promised to state and local employees.

There are two components of contribution rates: normal costs and amortization costs.

Normal Cost: The portion of pension contributions used to cover the cost of benefits earned in a given year. This is a forward-looking estimate of the amount that needs to be contributed to pay the benefits accrued by employees during the fiscal year.

Amortization cost: The portion of pension contributions used to pay down unfunded pension liabilities, which arise because normal costs were either underestimated or not fully funded in the past. This is a backward-looking payment, structured over a set period (e.g., 20–30 years), to gradually pay down pension debt.

From 2014 to 2024, normal costs have remained virtually flat, even declining slightly, from 14% to 13%. Meanwhile, amortization costs have increased from 9% to 16%—an 80% increase.

There are two main drivers of the significant increase in amortization costs: first, a widespread, decades-long underestimation of the true cost of the pension benefits promised to public employees; and second, retroactive benefit increases.

The underestimation of costs has been primarily driven by chronic overestimation of investment returns. Since the 2000s, public pensions have assumed that they would earn higher investment returns than they really have. Plans have been increasingly forced to reckon with this reality, and amortization costs have risen to compensate.

Normal costs have been stable. This is due to public pension reforms across the country—such as the creation of new tiers, fine-tuning of cost-of-living adjustments (COLAs), and the introduction of defined contribution plans—which have kept actuarial costs stable.

Some increases in pension benefits, however, do not manifest as increases in normal costs, which only capture actuarial and pre-determined benefits. When benefits enhancements are forward-looking and pre-funded—as they are supposed to be—normal costs increase correspondingly. But in some cases, state legislatures and cities give retroactive pension enhancements—such as increased salary multipliers or COLAs—without pre-funding them. The costs of such retroactive benefit increases show up all at once, as a debt to be amortized, and only to a small degree, as an increase in normal costs. Because amortization costs have been rising while normal costs have remained stable, the composition of pension contributions has shifted. In 2014, 60% of pension contributions were directed to fund the pension benefits that current employees accrued that year. By 2024, only 45% of contributions funded current benefits. More than half of the contributions, 55%, go toward covering previous underfunding.

State and local governments have footed the increase

In almost all defined benefit plans, employee contribution rates are fixed. If the costs of pension benefits unexpectedly increase due to the expansion of COLAs, disappointing investment returns, or readjustments to discount rates, employers—that is, the sponsoring state or local government—must cover this difference on their own.

That explains the following chart, which shows that, from 2014 to 2023, employer contribution rates increased by 31%, while employee contribution rates rose by only 14%.

State and local governments have had to absorb nearly all of the increased pension costs, because, ultimately, it is public employers—and, by extension, taxpayers—who bear full risk for any unexpected costs in funding pension benefits. The result is that a growing share of current taxpayers’ money is being used to pay pension benefits for past employees—that is, to cover the costs of services they themselves did not use.

The nation’s estimated $1.5 trillion in government pension debt will continue to generate significant strains on budgets and taxpayers. Lawmakers should continue to prioritize strategies that accelerate amortization schedules and ensure annual contributions are sufficient to pay down existing liabilities, not just maintain them.

Looking ahead, states should adopt cost-sharing and alternative retirement plan designs for new hires that align costs and risks more evenly between employers and employees, preventing the accumulation of new unfunded liabilities.

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Report: Cities have $1.4 trillion in debt

Mariana Trujillo — Mon, 17 Nov 2025 05:06:00 +0000

Nationally, cities report $1.4 trillion in debt, equivalent to approximately $7,000 per capita, according to Reason Foundation’s State and Local Government Finance Report.

The cities of New York, Chicago, Los Angeles, the city and county of San Francisco*, and Houston report the most total liabilities.

The $1.4 trillion in debt carried by cities, towns, and other incorporated municipalities represents 23% of total state and local government debt found in the State and Local Government Finance Report, which can be explored interactively in Reason Foundation’s GovFinance Dashboard.

In per capita terms for cities with 10,000 residents or more, the city and county of San Francisco* ranks first, with total liabilities representing about $43,000 per resident. The rest of the top five cities in per capita debt are Nantucket (MA), New York, Ocean City (NJ), and Miami Beach.

Total debt, reported as “total liabilities,” includes money a city owes in the near term, such as unpaid bills and accrued payroll, as well as long-term obligations, including bonds, pensions, and retiree healthcare.

Reason Foundation extracted this data from publicly available, audited financial reports filed by each county for their fiscal year 2023. While the dashboard covers 90% of the U.S. population living in an incorporated city, this analysis displays the top 50 cities in each category, among cities with 10,000 residents or more.

* Several jurisdictions in the United States operate under consolidated city–county governments, meaning their financial data reflect both city and county functions. Due to their structure and financial reporting practices, these entities could be considered either a city or a county, and therefore, are listed in both the city and county rankings of this report, which can make some comparisons to other cities or counties difficult. Some of the entities most impacted in the rankings and figures are San Francisco, Denver, Honolulu, Nashville, New Orleans, New York and Philadelphia.

The combined entities in the report include the city and borough of Juneau (AK), city and borough of Sitka (AK), city and borough of Wrangell (AK), city and county of San Francisco (CA), city and county of Broomfield (CO), city and county of Denver (CO), Jacksonville (FL), Athens–Clarke County (GA), Columbus–Muscogee County (GA), Georgetown–Quitman County (GA), Macon–Bibb County (GA), city and county of Honolulu (HI), Greeley County (KS), Wyandotte County (KS), Lexington–Fayette Urban County (KY), Louisville/Jefferson County Metro Government (KY), New Orleans (LA), Anaconda–Deer Lodge County (MT), Butte–Silver Bow County (MT), Philadelphia (PA), Lynchburg–Moore County Metropolitan Government (TN), and Nashville–Davidson County (TN). In our aggregate figures, these entities are added to the “county total.”

The five New York City counties—Bronx, Kings, New York, Queens, and Richmond—are consolidated in a single city government and financial report and are listed collectively as New York City in this report.

Baltimore (MD), St. Louis (MO), Chesapeake (VA), Norfolk (VA), Virginia Beach (VA), Baton Rouge (LA), and the District of Columbia (DC) are independent city governments. They have no overlapping county, and perform both municipal and county functions—or in the case of Baton Rouge, the county government falls under the umbrella of the city. In our aggregate figures, these entities are added to the “municipal total.” For more details, please see the report’s about page.

City governments’ long-term debt

About 85% of city debt is long-term—that is, due in more than one year. This category consists of bonds, loans, and notes (50%), unfunded pension liabilities (25%), unfunded retiree health care (18%), and accrued leave payouts (2%).

Cities collectively report $1.2 trillion in long-term debt, or about $6,000 per capita nationally.

New York, Chicago, Los Angeles, the city and county of San Francisco, and Houston declared the most total long-term debt.

For cities with 10,000 residents or more, the city and county of San Francisco ranks first in per capita long-term debt, at $36,602 per resident, followed by Ocean City (NJ), Nantucket (MA), New York City, and Miami Beach.

City government pension debt

Unfunded pension liabilities arise when governments set aside fewer assets than required to fulfill the retirement benefits promised to its public employees–declared as net pension liability.

Cities collectively report nearly $300 billion in unfunded pension obligations, equal to 25% of their long-term debt and equivalent to about $1,500 per capita nationally.

For cities with 10,000 residents or more, New York City has the most total public pension debt at $40 billion, followed by Chicago, Los Angeles, Phoenix, and Philadelphia.

In per capita terms, the city of Chicago ranks first, with its pension debt representing about $13,500 per resident. Beverly Hills, Miami Beach, Riverdale (IL), and Forest Park (IL) follow.

City government OPEB debt

Other post-employment benefits (OPEB) are mostly retiree health care for public employees. OPEB debt arises when governments promise these benefits but do not set aside enough money in advance to cover the future costs, which are declared as net OPEB liability.

Cities collectively report $215 billion in OPEB debt, equal to 18% of their long-term debt, equivalent to roughly $1,100 per capita nationally.

The city New York has the most total pension debt at $95 billion, followed by city and county of San Francisco, Austin, Yonkers (NY), and Boston.

In per capita terms, among cities with 10,000 residents or more, the city of Yonkers (NY) ranks first, with its OPEB debt representing about $12,100 per resident. Waltham (MA), New York, Hoboken (NJ), and Plattsburgh (NY) follow.

City governments’ outstanding bonded debt

Bonds, loans, and notes represent the portion of a city’s long-term liabilities explicitly borrowed in credit markets. Unlike pensions or OPEB, which accumulate as estimated unfunded promises, these instruments are contractual debt obligations with fixed repayment schedules.

Nationally, cities report $608 billion in outstanding bonds, loans, and notes—50% of all long-term liabilities. This equals about $3,000 per capita.

New York City has the most total bonded debt at $105 billion, followed by Los Angeles, Chicago, the city and county of San Francisco, and Houston.

In per capita terms, the city and county of San Francisco (CA) ranks first, with its bonded debt representing about $27,900 per resident. Celina (TX), Salt Lake City (UT), Nantucket (MA), and Washington (DC) follow.

Reason Foundation’s State and Local Government Finance Report totals the liabilities of each state government, as well as the cities, towns, counties, and school districts within each state. This report covers all 50 state governments, over 2,000 county governments, 8,000 municipal governments, and 10,000 school districts, which serve 331 million Americans nationwide.

All figures in the State and Local Government Finance Report are sourced from the financial reports of state and local governments, most often their annual comprehensive financial reports. The data is from the 2023 fiscal year, the most recent year for which complete data are available. Nevada and a handful of cities and counties across the country have not reported 2023 data. Our database lists the available 2023 fiscal year data for each city.

Despite a thorough review, data collection at this scale can result in discrepancies. Please alert us if you identify any errors.

For personalized reports on municipal entities or more detailed information on assets, liquidity, and solvency, please visit the GovFinance Dashboard.

If you have any questions or would like to discuss this data more, please email Mariana Trujillo at mariana.trujillo@reason.org or Jordan Campbell at jordan.campbell@reason.org.

Report: State and local governments have $6.1 trillion in debt

Report ranks every state’s total debt, from California’s $497 billion to South Dakota’s $2 billion

The post Report: Cities have $1.4 trillion in debt appeared first on Reason Foundation.

Report: County governments have $757 billion in debt

Mariana Trujillo — Mon, 17 Nov 2025 05:05:00 +0000

County governments had $757 billion in debt at the end of 2023, equivalent to approximately $2,600 per capita nationwide, according to Reason Foundation’s State and Local Government Finance Report.

Los Angeles County has the most debt of any county government: $62.36 billion.

The combined city and county of San Francisco and Miami-Dade County each had more than $30 billion in debt at the end of 2023. Cook County and the combined city and county of Philadelphia were next, with over $20 billion in debt.

The rest of the 10 most-indebted counties at the end of 2023 were Washington, D.C. ($19.83 billion), the combined city and county of Denver* ($14.3 billion), Nassau County ($14.2 billion), Santa Clara County ($13.4 billion), and the combined city and county of Honolulu* ($12 billion).

This analysis is part of Reason Foundation’s State and Local Government Finance Report, which can be explored interactively in the GovFinance Dashboard. Reason Foundation extracted this data from publicly available, audited financial reports filed by each county for their fiscal year 2023.

Total debt, reported as total liabilities, includes money a county government owes in the near term, such as unpaid bills and accrued payroll, as well as long-term obligations, including bonds, public pension benefits, and retiree health care benefits.

In per capita terms, North Slope Borough, Alaska, ranks first, with its total debt representing $46,883 per county resident.

For counties with 10,000 residents or more, the combined city and county of San Francisco, Washington, DC, the combined city and county of Denver, and Baltimore have the next highest per capita debt levels.

At $12,880 per person, Los Alamos County, New Mexico, has the sixth most per capita county debt.

For counties with 10,000 residents or more, a total of 43 counties reported at least $7,000 in per capita debt, including 21 counties with more than $10,000 in per capita debt.

The five New York City counties—Bronx, Kings, New York, Queens, and Richmond—are consolidated in a single city government and financial report and are listed collectively as the city of New York (NY) in this report.

Baltimore (MD), St. Louis (MO), Chesapeake (VA), Norfolk (VA), Virginia Beach (VA), Baton Rouge (LA), and the District of Columbia (DC) are independent city governments. They have no overlapping county, and perform both municipal and county functions—or in the case of Baton Rouge the county government falls under the umbrella of the city. In our aggregate figures, these entities are added to the “municipal total.” For more details, please see the report’s about page.

Long-term debt

About 80% of county debt is long-term debt, which is due in more than one year. Long-term debt consists of bonds, loans, and notes (44%), unfunded pension liabilities (29%), unfunded retiree health care (17%), and accrued leave payouts (3%).

Counties collectively report $624 billion in long-term debt, or $2,200 per capita nationally.

Los Angeles County has the most long-term liabilities at $52 billion, followed by the combined city and county of San Francisco, Miami-Dade County, Cook County, and the combined city and county of Philadelphia.

In per capita terms, for counties with 10,000 residents or more, the city and county of San Francisco has the most long-term liabilities, representing $46,883 per resident. North Slope Borough, Alaska, was second, with more than $35,000 in long-term debt per resident, followed by Washington, D.C., with over $23,000 per capita.

The combined city and county of Denver, Baltimore, Los Alamos County (NM), the combined city and county of Honolulu, Cape May County (NJ), Inyo County (CA), the combined city of Nashville-Davidson County (TN), and Miami-Dade County also had long-term liabilities exceeding $10,000 per capita.

County pension debt

Unfunded pension liabilities arise when governments set aside fewer assets than required to fulfill the retirement benefits promised to their public employees, which are declared as net pension liabilities.

At the end of 2023, counties collectively reported $181 billion in unfunded pension obligations, which represent 30% of their long-term debt. On a per capita basis, this county pension debt amounts to about $600 per person nationally.

Los Angeles County has the most public pension debt at $13.2 billion, followed by Cook County, Santa Clara County, San Diego County, and the combined city and county of Philadelphia.

In per capita terms, for counties with 10,000 residents or more, North Slope Borough, Alaska, ranks highest in the nation, with its public pension debt representing $12,318 per county resident, followed by Los Alamos County ($6,057 per capita), Mono County ($5,111), Juneau City and Borough ($4,386), Inyo County ($4,363) and Colusa County ($4,220).

Outstanding bonded debt

Bonds, loans, and notes represent the portion of a state government’s long-term liabilities that are explicitly borrowed in credit markets. Unlike public pension benefits or OPEB, which accumulate as estimated unfunded promises, these instruments are contractual debt obligations with fixed repayment schedules.

Nationally, counties report $275 billion in outstanding bonds, loans, and notes, which represent 44% of their long-term debt. On a per capita basis, this equals $956 per capita nationally.

The city and county of San Francisco has the most total bonded debt at $23.5 billion, followed by Miami-Dade County ($19.5 billion), Washington, DC ($12.6 billion), city and county of Denver ($9.9 billion, and city and county Honolulu ($7.1 billion).

In per capita terms, San Francisco ranks first, with its bonded debt representing $26,892 per resident. North Slope Borough, Washington, DC, Denver, and Arlington County (VA) were the next highest.

Despite a thorough review, data collection at this scale can result in discrepancies. Please alert us if you identify any errors.

For personalized reports on municipal entities or more detailed information on assets, liquidity, and solvency, please visit the GovFinance Dashboard.

If you have any questions or would like to discuss this data more, please email Mariana Trujillo at mariana.trujillo@reason.org or Jordan Campbell at jordan.campbell@reason.org.

Report: State and local governments have $6.1 trillion in debt

Report ranks every state’s total debt, from California’s $497 billion to South Dakota’s $2 billion

The post Report: County governments have $757 billion in debt appeared first on Reason Foundation.

Pension Reform News: Reason’s annual report finds $1.5 trillion in aggregate pension debt

Mariana Trujillo — Thu, 30 Oct 2025 13:53:03 +0000

In This Issue:

Articles, Research & Spotlights

Reason’s Annual Report Finds $1.5 Trillion in Aggregate Pension Debt
Undoing California’s Pension Reforms Could Cost Billions
What Government Worker Reductions Mean for Pensions

News in Brief
Quotable Quotes on Pension Reform
Data Highlight
Reason Foundation in the News
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Reason Foundation’s Annual Pension Solvency and Performance Report Finds $1.48 Trillion in Debt

Today, Reason Foundation is publishing our 2025 Pension Solvency and Performance Report. It’s an interactive dashboard that lets users explore an aggregated, plan-level overview of key public pension funding and investment metrics, actuarial assumptions, and other performance indicators for government-run pensions. New to the report are state rankings of funding, contribution adequacy, and investment metrics. The study compiles 23 years of data from 315 state and local public pension systems in the United States, showing that the total public pension debt now stands at $1.48 trillion at the end of 2024, the most recent year with complete data available. Most of the pension debt, $1.29 trillion, is owed by state governments. Overall, state and local governments have only 79% of the funds needed to fulfill pension promises made to public workers. With $15,804 in pension debt per person, Illinois has the highest unfunded pension liabilities per capita, the study finds. Connecticut has the second-most public pension debt per capita at $10,151, and six other states have public pension debt exceeding $8,000 per person: Alaska, Hawaii, New Jersey, Mississippi, New Mexico, and Kentucky.

In addition to debt and funded ratio information, the report also incorporates the latest market outcomes to estimate 2025 funding measurements. It finds that these metrics are expected to improve over the next year, but a major recession could add more than $1.2 trillion in unfunded liabilities nationwide and undo the funding progress most pension systems have made over the last 15 years. The study also presents other useful measurements on annual costs and investment performance to help understand the challenges facing public pension systems today. The interactive tool is available here. An overview of the findings, snapshots of state debt and funded ratios, and plan-level debt and return rate information are here:

Report and Webinar: State and local pension plans have $1.48 trillion in debt
Study: Illinois, Connecticut, Alaska, Hawaii, New Jersey and Mississippi have the most per capita pension debt
Study: The public pension plans with the most debt, best and worst investment return rates

California Faces a Pension Bill that Would Expose Taxpayers to More than $9 Billion in Additional Costs

In 2012, then-California Gov. Jerry Brown signed the Public Employees’ Pension Reform Act (PEPRA), which established much-needed limits on what California’s local governments could promise in pension benefits to public workers. Those public pension reforms are estimated to have already saved the state more than $5 billion and would likely save at least $25 billion over the next decade, but only if lawmakers stay the course and reject recent efforts to undo PEPRA. A new Reason Foundation explainer details how a proposed piece of legislation (Assembly Bill 1383) would undermine the landmark pension reform and could generate more than $9 billion in additional costs for the state’s already underfunded pension system, adding a significant burden to California’s already stretched taxpayers.

How Government Workforce Reductions Can Impact Public Pension Debt

Government shutdowns, hiring freezes, and a growing focus on reducing the size of government are slowing the growth of the public employee workforce in many states. Lawmakers and government administrators should be aware that this could have a negative impact on public pensions if assumptions are not adjusted, warn Reason Foundation’s Steve Vu and Zachary Christensen. Considering the shifting climate in government employment, it is an appropriate time to reevaluate the assumptions used to project the growth of these workforces to avoid surprise costs for taxpayers decades down the road.

News in Brief

AI Familiarity Linked to Higher Retirement Planning Confidence Among Public Employees

A new study from MissionSquare Research Institute explores how the adoption of artificial intelligence (AI) in state and local government workplaces influences employee engagement with retirement planning. Based on a Jan. 2025 survey of 2,000 public employees, the report finds that those who use AI at work are more than twice as likely to use it for retirement planning (57% vs. 26%). Comfort with AI is a strong predictor of interest in employer-provided AI retirement tools: 82% of employees already comfortable with AI express interest, compared with just 15% of those not at all comfortable. Income also matters—employees earning over $100,000 show 116% higher odds of interest than lower-income peers. The employees most engaged with AI are also most likely to work with financial professionals (72% vs. 15%). Read the full study here.

Quotable Pension Quotes

“The market is running really hot right now. … It’s been good for us, but it won’t always be this good.”
—North Carolina State Treasurer Brad Briner quoted in “Could NC pension fund management changes mean COLAs for retirees?,” News From The States, Oct. 7, 2025.

“If you go back to what happened in 2024, 2023, the cities and counties said, we can’t pay more. These same cities and counties, when you talk about first responders, the majority of them are county and city employees. So, this cost is going to fall back on the cities and counties.”
— Mississippi State Sen. Daniel Sparks quoted in “First responders ask lawmakers to create separate retirement plan,” WLOX, Oct. 2, 2025.

Data Highlight

Reason Foundation’s Annual Pension Solvency and Performance Report provides an interactive funding history of the nation’s public retirement plans. The data dashboard shows if your state is on track to fulfill pension promises made to public workers and previews where these funding measurements would move under various levels of market stress. See the full interactive report here.

Reason Foundation in the News

“We should just be honest about why they raised it to 7.25% […] They did it because they have no money and they didn’t want to make the payments to the pension system. I’m sure the actuaries have justification for raising the assumed rate of return, but let’s be honest.”-Reason’s Ryan Frost, quoted in “Fiscal Fallout: Washington’s pension system gamble,” The Center Square, Sept. 17, 2025.

The post Pension Reform News: Reason’s annual report finds $1.5 trillion in aggregate pension debt appeared first on Reason Foundation.

Study: Illinois, Connecticut, Alaska, Hawaii, New Jersey and Mississippi have the most per capita pension debt

Mariana Trujillo — Thu, 30 Oct 2025 04:05:00 +0000

Nationwide, 47 of the 50 states had public pension debt at the end of 2024, Reason Foundation’s Annual Pension Solvency Report finds. The study shows that 23 states each had over $20 billion in unfunded pension liabilities at the end of the 2024 fiscal year, the most recent year with complete data available.

Two states had more than $200 billion in public pension debt: California ($265 billion in unfunded pension liabilities) and Illinois ($201 billion).

Two other states reported more than $90 billion in unfunded pension liabilities: Texas ($92.2 billion) and New Jersey ($92 billion).

Unfunded liabilities exceeded $60 billion in two additional states: Pennsylvania ($67 billion) and Ohio ($61 billion).

Fourteen states have more than $30 billion in unfunded liabilities, including Massachusetts ($44 billion), Florida ($44 billion), New York ($45 billion), Kentucky ($40 billion), Connecticut ($37 billion), Michigan ($36 billion), Georgia, ($33 billion), and Maryland ($31 billion).

Tennessee, Washington, and South Dakota are the only three states that did not report any aggregate unfunded pension liabilities at the end of 2024, according to Reason Foundation’s pension report.

With $15,804 in pension debt per person, Illinois has the highest unfunded pension liabilities per capita, according to the Reason Foundation report.

Connecticut has the second-most public pension debt per capita at $10,151.

Six other states have public pension debt exceeding $8,000 per person: Alaska ($9,990), Hawaii ($9,784), New Jersey ($9,688), Mississippi ($9,033), New Mexico ($8,641), and Kentucky ($8,626).

California and Massachusetts have more than $6,000 in pension debt per resident.

Thirty-five states have at least $2,000 in public pension debt per capita, and 45 have at least $1,000 per person.

In the aggregate, state and local pension plans had $1.48 trillion in debt. Reason Foundation finds that the median funded ratio of all U.S. public pension plans was 79% at the end of 2024. This means governments have 79 cents for every dollar of pension benefits already promised to public workers and retirees.

With its public pension systems just 52% funded, Illinois has the worst funded ratio in the nation.

The other states with funding below 60% are Kentucky (54%), New Jersey (55%), Mississippi (56%), and Connecticut (59.5%).

State with public pension systems with funded ratios below 70% are South Carolina (62%), Hawaii (63%), Rhode Island (65%), New Mexico (66%), Pennsylvania (66%), Massachusetts (66%), Vermont (67%), New Hampshire (69%), and Colorado (70%).

Just three states had fully funded public pension systems at the end of 2024: Tennessee (104% funded), Washington (102%), and South Dakota (100%) and another six states were over 90% funded.

For detailed information about public pension plans’ unfunded liabilities, asset allocation, contribution rates, stress testing, and more, please visit Reason Foundation’s full Annual Pension Solvency and Performance Report.

The report ranks public pension systems from best to worst across five core dimensions: funded status, investment performance, contribution rate adequacy, asset allocation risk, and probability of meeting assumed returns.

Reason Foundation extracted these values from publicly available audited financial reports. Despite a thorough review, data collection at this scale can lead to discrepancies. Please alert us if you identify any errors. Reason Foundation’s pension team provides tailored technical assistance and resources to address the specific needs of states, counties, and cities. So please don’t hesitate to contact us at pensionhelpdesk@reason.org.

The post Study: Illinois, Connecticut, Alaska, Hawaii, New Jersey and Mississippi have the most per capita pension debt appeared first on Reason Foundation.

The public pension plans with the most debt, best and worst investment return rates

Mariana Trujillo — Thu, 30 Oct 2025 04:02:00 +0000

Forty-four public pension systems in the United States had more than $10 billion in debt each at the end of their 2024 fiscal years, a new Reason Foundation report finds. The study also identifies the pension plans that produced the worst investment returns and those that saw their unfunded liabilities grow in a year with a very strong stock market.

Reason Foundation finds that 18 public pension plans now have over $20 billion in debt each, nine systems have more than $30 billion, and one, CalPERS, has over $100 billion in unfunded liabilities. At $166 billion in debt, the California Public Employees Retirement Fund, the largest public pension system in the country, had the most pension debt in the nation at the end of 2024, the most recent year with complete data available.

The next five public pension systems with the most unfunded liabilities are all teachers’ retirement plans: the Illinois Teachers Retirement System ($83 billion in unfunded liabilities), the Texas Teacher Retirement System ($63 billion), the Pennsylvania Public School Employees’ Retirement System ($43 billion), the New Jersey Teachers’ Pension and Annuity Fund ($41 billion), and the California State Teachers Retirement System ($40 billion).

The three other public pension systems with over $30 billion in unfunded liabilities are the Florida Retirement System ($39 billion), the New Jersey Public Employees Retirement System ($31 billion), and the Illinois State Employees Retirement System ($30 billion).

In the aggregate, the nation’s public pension systems reduced their unfunded liabilities from $1.62 trillion in 2023 to $1.48 trillion in 2024, a 9% decrease. But three public pension systems saw their debt grow by more than $1 billion in 2024. Unfunded liabilities grew by over $500 million in another five additional plans.

With a $1.54 billion increase in unfunded liabilities, the Maryland Teachers’ Retirement System saw the largest growth in public pension debt in the nation from 2023 to 2024. The system now has $14.56 billion in debt.

Unfunded liabilities also increased by over $1 billion in 2024 in the Massachusetts Teachers’ Retirement System ($1.17 billion increase in debt) and the Illinois Teachers’ Retirement System ($1.01 billion).

From 2023 to 2024, public pension debt increased by over $500 billion in another five plans: the Maryland State Employees’ Retirement System ($735 million increase in unfunded liabilities), the Alameda County Employees’ Retirement Association ($678 million), the Illinois State University Retirement System ($628 million), the New Mexico Public Employees Retirement Association ($601 million), and the Indiana Public Employees Retirement Fund ($502 million).

The 2024 fiscal year was strong for most investors and the stock market, but some public pension plans lagged behind. Failing to meet investment expectations increases public pension debt and taxpayers’ costs. The median investment return for public retirement systems in 2024 was 9.88%, according to Reason Foundation’s Annual Pension Solvency and Performance Report.

The Fire Fighters’ Relief and Retirement Fund of Austin, Texas, earned just a 4.7% return in 2024. It was the only pension system in the nation that earned less than a 5% return in 2024. The fund’s debt increased from $297.5 million to $349.5 million in 2024.

Five other public pension plans failed earn a 6% returns in 2024: the Kansas City Public School Retirement System (5.2%), the Educational Employees’ Supplementary Retirement System of Fairfax County (5.68%), Oregon Public Employees Retirement System(5.8%), Omaha City Employees Retirement System (5.92%), and the South Dakota Retirement System (5.98%).

At the other end of the spectrum, Reason Foundation finds that 11 public pension plans earned investment returns of over 15% in 2024, and five plans produced returns exceeding 20%. 

The Miami General Employees and Sanitation Employees Plan earned a 24% return rate in 2024, the highest in the nation.

The Michigan Legislative Retirement System (23.94% return), the Alabama Judicial Retirement Fund (22.21%), the Alabama Employees’ Retirement System (ERS) (21.2%), and the Alabama Teachers’ Retirement System (21.1%) also produced returns of over 20% for 2024.

These values were extracted from publicly available audited financial reports. Despite a thorough review, data collection at this scale can lead to discrepancies. Please alert us if you identify any errors. Reason Foundation’s pension team provides tailored technical assistance and resources to address the specific needs of states, counties, and cities. So please don’t hesitate to contact us at pensionhelpdesk@reason.org.

The post The public pension plans with the most debt, best and worst investment return rates appeared first on Reason Foundation.

Report: State and local pension plans have $1.48 trillion in debt

Mariana Trujillo — Thu, 30 Oct 2025 04:00:00 +0000

Public pension systems in the United States saw a decrease in unfunded liabilities in 2024, dropping from $1.62 trillion to $1.48 trillion, a 9% decrease, Reason Foundation’s 2025 Pension Solvency and Performance Report finds. This was primarily driven by the higher-than-expected investment returns in the 2024 fiscal year.

State pension plans continue to carry the majority of the nation’s public pension debt, holding $1.29 trillion in unfunded liabilities, compared to local governments’ $187 billion in debt, Reason Foundation finds.

The median funded ratio of this report’s sample of pension plans stood at 78% at the end of 2024, a 3% increase from last year. This indicates that, while public pension funding has improved over the previous year, governments have still saved only 78 cents of every dollar needed to provide promised retirement benefits.

Reason Foundation’s stress tests also suggest that public pensions remain vulnerable to market downturns. A single economic recession could significantly increase their unfunded accrued liabilities, potentially raising the state and local total of public pension debt to as much as $2.74 trillion by 2026.

The Pension Solvency and Performance Report provides a comprehensive overview of the current and future status of state and local public pension funds. As the nation navigates another year marked by significant economic fluctuations and demographic shifts, this report assesses the resilience and adaptability of U.S. public pension systems. This analysis ranks, aggregates, and contrasts public pension plans based on their funding, investment outcomes, actuarial assumptions, and other indicators.

In addition to 24 years of historical data, the 2025 edition of Reason Foundation’s Pension Solvency and Performance Report includes financial and actuarial data from the pension plans’ 2024 fiscal year, the most recent year for which most government pension plans have reported data.

This edition of the report ranks public pension systems from best to worst across five core dimensions: funded status, investment performance, contribution rate adequacy, asset allocation risk, and probability of meeting assumed returns. Together, these measures reveal which states have positioned their public pension systems for long-term stability and which remain vulnerable to rising costs, market volatility, and political shortfalls in funding discipline.

Unfunded public pension liabilities

In recent decades, public pension systems in the U.S. have seen a significant increase in unfunded liabilities, particularly during the Great Recession. Between 2007 and 2010, unfunded public pension liabilities grew by over $1.15 trillion—an 809% increase—reflecting the financial challenges faced during that period. Despite some improvements in funding ratios over the last decade, these pension liabilities have continued to rise, underscoring ongoing financial pressures on state and local governments and taxpayers.

As of the end of the 2024 fiscal year for each public pension system, total unfunded public pension liabilities (UAL) reached $1.48 trillion, with state pension plans carrying the majority of the debt.

Nationwide, the median funded ratio of public pension plans stood at 78% at the end of 2024. Still, stress tests suggest that another economic downturn could significantly increase unfunded liabilities, potentially raising the total to $2.74 trillion by 2026.

Funded ratios of public pensions

The funded ratio of public pensions, which indicates the percentage of promised benefits that are currently funded, has experienced considerable fluctuations. After returning to 96% funded in 2007, the funded ratio of U.S. public pension systems fell to 64% during the Great Recession. Although funded ratios have recovered somewhat, they remain susceptible to market downturns.

A stress test scenario for 2026, assessing the impact of a 20% market downturn, indicates that the average funding level of public pension plans could fall to 63%. This could lead to critical underfunding for many pension plans, raising concerns about their ability to fulfill future obligations.

Changes in investment strategies

Over the past two decades, investment strategies of public pension funds have shifted notably. Allocations to traditional asset classes, like public equities and fixed income, have decreased while investments in alternative assets, such as private equity, real estate, and hedge funds, have increased. This shift reflects a strategic move for pension systems trying to achieve higher investment returns in a challenging market environment.

By the end of the 2024 fiscal year for each pension system, public pension funds managed approximately $5.49 trillion in assets, with a significant portion now invested in alternative assets, such as private equity/credit, and hedge funds. While these alternative investments may offer the potential for higher returns, they also introduce greater complexity and risk.

Investment performance

Public pension funds have faced challenges meeting their assumed rates of return (ARRs). Over the past 24 years, the national average annual rate of investment returns of pension systems has been 6.62%—still below what the plans had assumed. The average assumed rate of return for public pensions has been gradually reduced from 8.02% in 2001 to 6.87% in 2024.

Failing to meet their overly optimistic assumed rates of return has contributed to a significant increase in unfunded liabilities, requiring additional pension contributions from state and local governments, i.e., taxpayers, to maintain funding levels.

Investment returns themselves have varied widely, with public pension plans posting very strong gains in 2021 (25.4% returns), in contrast to large losses in 2009 (-12.9% returns on average) and further losses in 2022 (-5.1%). This volatility between expected rates of return and actual investment returns has created budgetary challenges for governments and taxpayers.

Employer contributions and cash flow

Employer contributions continue to dominate pension funding, while employee rates remain stable. In 2024, the total contribution rate was 28.8% of payroll, with employers covering 21.6% and debt amortization alone consuming 15.7%. More than half of all contributions—54%—went to paying down past pension debt rather than funding new benefits.

Net cash flows improved modestly, narrowing to -1.7% of assets, but systems remain reliant on strong investment returns to cover ongoing benefit payments.

Conclusion

Despite a year of substantial market gains and improved funding ratios, systemic risks remain for public pension systems. Far too many pension plans continue to rely on optimistic return assumptions, volatile markets, and a heavy reliance on taxpayer contributions to manage their legacy debt. Without sustained public pension reforms and more disciplined funding policies, today’s limited progress could quickly reverse.

This report was produced by Reason Foundation’s Pension Integrity Project, an initiative to conduct research and provide consulting and insight about the public pension challenges our nation grapples with.

Webinar

To dive deeper into the findings, watch our pre-recorded webinar below, where Reason Foundation’s Pension Integrity Project team details the report’s findings, explains key trends, and unpacks what these results mean for state and local governments, public employees, and taxpayers.

Study: Illinois, Connecticut, Alaska, Hawaii, New Jersey and Mississippi have the most per capita pension debt

The public pension plans with the most debt, worst investment returns of the year

The post Report: State and local pension plans have $1.48 trillion in debt appeared first on Reason Foundation.

Report ranks every state’s debt, from California’s $497 billion to South Dakota’s $2 billion

Mariana Trujillo — Thu, 23 Oct 2025 04:02:00 +0000

State governments had $2.7 trillion in debt at the end of 2023, a new Reason Foundation analysis finds. This state debt is equivalent to approximately $8,000 per person nationally.

With $497 billion in liabilities, California had the largest state government debt as of the end of the 2023 fiscal year, the most recent year for which complete data are available.

Four other state governments had more than $200 billion in state debt: New York ($233 billion), Illinois ($223 billion), Texas ($217 billion), and New Jersey ($213 billion). Massachusetts had $120 billion in state liabilities, followed by Connecticut, Washington, Pennsylvania and Florida.

Meanwhile, 10 states—South Dakota, Idaho, Nebraska, Montana, New Hampshire, Utah, Vermont, Rhode Island, Wyoming, and Maine—each had less than $10 billion in debt at the end of 2023, according to Reason Foundation’s State and Local Government Finance Report.

On a per capita basis, Connecticut had the highest state debt, with $26,187 of debt per state resident at the end of 2023. With $22,968 in debt per resident, New Jersey was the only other state with more than $20,000 in liabilities per capita.

Reason Foundation finds 13 states—Connecticut, New Jersey, Hawaii, Delaware, Illinois, Massachusetts, Wyoming, Alaska, North Dakota, California, Washington, New York, and Vermont—had more than $10,000 in debt per resident.

Of other more populous states, Texas had $7,443 in per capita debt, Pennsylvania reported $5,872 per capita, and Florida had $3,334 in debt per capita.

The state governments with the lowest per capita debt at the end of 2023 were Tennessee, Utah, Nebraska, Idaho, South Dakota, Oklahoma, and Indiana, each with less than $3,000 in debt per resident.

Total state debt, reported as total liabilities, includes money state governments owe in the near term, such as unpaid bills and accrued payroll, as well as long-term obligations, including bonds, public pension benefits, and retiree health care benefits.

State governments’ long-term debt

Approximately 72% of state government debt is long-term, meaning it is due in more than one year. This long-term debt consists of bonds, loans, and notes (33%), unfunded public employee pension benefits (35%), unfunded public employee retiree health care benefits (22%), and accrued public employee leave payouts (2%).

State governments collectively reported $1.9 trillion in long-term debt, or approximately $5,800 per capita nationally, as of the end of 2023.

Reason Foundation found 29 states held at least $10 billion in long-term liabilities at the end of 2023.

Six of those states had more than $100 billion in long-term liabilities each: California ($299 billion in long-term debt), Illinois ($199 billion), New Jersey ($197 billion), Texas ($171 billion), New York ($154 billion), and Massachusetts ($104 billion).

Connecticut had the highest per capita long-term debt in the nation, at $23,934 per resident. New Jersey was just behind, with $21,197 in long-term debt per capita.

Hawaii, Illinois, Delaware, and Massachusetts were the other states with long-term debt exceeding $10,000 per capita at the end of 2023.

Of the larger states, New York ranked 12th in per capita long-term debt, with $7,615 per resident. California ranked 13th, with $7,552 per capita long-term debt. Texas was 16th, with $5,870 per capita. Florida ranked 37th in the nation in long-term liabilities, with $2,129 per capita.

Nebraska, Tennessee, Utah, and South Dakota were the only states reporting less than $1,000 per capita long-term debt at the end of 2023.

State public pension debt

Unfunded public employee pension liabilities occur when governments allocate fewer assets than necessary to fulfill the retirement benefits promised to public workers and retirees.

State governments collectively reported $664 billion in unfunded public pension obligations, equivalent to 35% of their long-term debt, or approximately $2,000 per capita nationally, as of the end of 2023.

As of the end of 2023, Illinois had the largest state pension debt, at $145 billion. It was the only state with more than $100 billion in state public pension debt.

California had the second-most state pension debt, $90 billion, which is primarily the state government’s portion of the larger unfunded liabilities held by the California Public Employees’ Retirement System and the California State Teachers’ Retirement System.

Five other state governments reported over $20 billion in pension debt: New Jersey ($80 billion), Texas ($55 billion), Massachusetts ($42 billion), Connecticut ($40 billion), and Kentucky ($29 billion)

On a per capita basis, Illinois again had the most pension debt, with $11,355 per resident. Connecticut was close behind with $11,192 per capita pension debt.

The remaining top 10 states with the highest per capita pension debt were New Jersey, Kentucky, Massachusetts, Alaska, Vermont, Hawaii, New Mexico, and Maryland.

In per capita pension debt, California ranks 14th, at $2,272 per resident; Texas ranks 16th, at $1,870; Florida ranks 41st, at $362; and New York ranks 49th, at $-157.

Three states did not have state pension debt at the end of 2023. Washington, New York, and South Dakota each reported more assets than projected liabilities across public pension systems.

State governments’ outstanding bonded debt

Nationally, state governments reported $630 billion in outstanding bonds, loans, and notes—33% of all state long-term liabilities, Reason Foundation finds. On a per capita basis, the state’s debt from bonds, loans, and notes equals about $1,900 per American.

California has the most outstanding bond debt, with $111.8 billion.

Texas has the second most bond debt, with $67 billion, followed by New York ($50 billion), Massachusetts ($46 billion), Illinois ($30 billion), Connecticut ($29 billion), Washington ($28 billion), New Jersey ($27 billion), Maryland ($22 billion), and Florida ($17 billion).

Two state governments, Indiana and Nebraska, reported zero outstanding bond debt at the end of 2023.

In per capita terms, the state governments of Hawaii and Connecticut rank first and second, respectively, with outstanding bonds of over $8,000 per resident.

Massachusetts, Delaware, and North Dakota follow, all with outstanding bond debt exceeding $4,000 per capita.

California ranked 10th, with $2,828 bond debt per resident. New York ranked 12th, with $2,487 per capita. Texas reported $2,284 in bond debt per resident, the 14th highest in the country, and Florida ranked 39th, with $785 per capita.

Indiana, Nebraska, Wyoming, Montana and Tennessee each reported less than $250 of bonded debt per resident. Indiana and Nebraska reported no outstanding bonds.

All figures in Reason Foundation’s State and Local Government Finance Report are sourced from state governments’ own financial reports, most often their annual comprehensive financial reports. The data in this report is from the 2023 fiscal year, the most recent year for which complete data are available. Nevada has not reported 2023 data. Therefore, the data the state reported for 2022 was used. Despite a thorough review, data collection at this scale can result in discrepancies. Please alert us if you identify any errors.

For personalized reports on municipal entities or more detailed information on assets, liquidity, and solvency, please visit the GovFinance Dashboard.

If you have any questions or would like to discuss this data further, please email Mariana Trujillo at mariana.trujillo@reason.org or Jordan Campbell at jordan.campbell@reason.org.

Related:

Report: State and local governments have $6.1 trillion in debt

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Report: State and local governments have $6.1 trillion in debt

Mariana Trujillo — Thu, 23 Oct 2025 04:01:00 +0000

State and local governments had $6.1 trillion in debt at the end of 2023, a new Reason Foundation analysis finds. On a per capita basis, state and local debt amounts to approximately $18,400 per American. This state and local debt is in addition to the $38 trillion national debt.

Of the $6.1 trillion in state and local debt, $2.66 trillion is held by state governments, $1.4 trillion by municipalities, $1.27 trillion by school districts, and $757 billion by counties.

Reason Foundation’s State and Local Government Finance Report finds that $1 trillion is owed by California’s state and local governments, most in the country.

New York’s state and local debt is the second-highest in the nation, at $798 billion, followed by Texas’s $550 billion in state and local debt, Illinois’s $407 billion, New Jersey’s $310 billion, and Florida’s $242 billion.

At the end of 2023, the most recent year for which complete data is available, 48 of the 50 states had at least $10 billion in total debt.

Only Vermont ($8.8 billion) and South Dakota ($5.9 billion) had less than $10 billion in state and local debt.

State and local government debt includes both short- and long-term obligations—from salaries due at the end of this month to bonds maturing decades from now. The $6.1 trillion in liabilities includes $1.5 trillion in public pension obligations, and $958 billion for retiree health care obligations,

In per capita terms, New York’s state and local debt is the highest in the nation. New York’s state government, cities, counties, and school districts hold debt of $39,491 per resident. This is more than double the national average of about $18,400, according to Reason Foundation’s analysis.

In addition to New York, four other states had per capita state and local debt exceeding $30,000 per resident at the end of 2023: Connecticut ($34,592), New Jersey ($33,338), Illinois ($31,783), and Hawaii ($30,399).

Massachusetts, California, Alaska, North Dakota, Delaware, Wyoming, and Maryland also had state and local liabilities of over $20,000 per resident.

Texas ranked next highest, 13th overall, with $18,872 in debt per Texan. Florida ranked 32nd, with $11,217 per person.

State and local debt was lowest in Idaho, Indiana, South Dakota, Tennessee, and Oklahoma, where the liabilities were less than $7,500 per resident at the end of 2023.

State and local government long-term debt

About 80% of state and local debt is long-term, meaning it is due in more than a year. This long-term debt category consists of bonds, loans, and notes (41% of the total), unfunded public pension liabilities (32%), unfunded retiree health care benefits (20%), and accrued leave payouts (2%).

Nationally, state and local governments reported $4.9 trillion in long-term debt at the end of 2023, Reason Foundation’s State and Local Government Finance Report finds. On a per capita basis, long-term debt amounts to approximately $14,700 in state and local debt for every person in the United States.

California, New York, Texas, Illinois, and New Jersey hold the largest long-term debt totals. Together, these five states account for $2.5 trillion, over half of the national total of $4.9 trillion in long-term liabilities.

There are 14 states where long-term state and local debt exceeds $100 billion, and 36 states where it is more than $20 billion.

In per capita terms, New York reported the most state and local long-term debt, at $31,369 per New Yorker, followed closely by New Jersey’s long-term state and local debt of $31,064 per person.

State and local long-term debt exceeds $20,000 per person in Connecticut ($30,998), Illinois ($28,291), Hawaii ($26,271), Massachusetts ($24,520), and California ($20,280).

Texas ranked 10th, with $15,818 per capita in long-term debt, and Florida ranked 30th, with $8,926 per Floridian.

Idaho, South Dakota, Indiana, Oklahoma, and Tennessee have the lowest long-term debt, with each state having less than $5,200 per resident.

State and local government pension debt

Unfunded public employee retirement liabilities, also known as public pension debt, form when governments set aside fewer assets than required to fulfill promised benefits.

Nationally, state and local governments reported $1.5 trillion in pension debt, or 32% of long-term liabilities, at the end of 2023. On a per capita basis, this state and local public pension debt amounts to approximately $4,600 per American.

California carries the most total state and local public pension debt in the nation, with $269 billion in unfunded liabilities.

Illinois ($228 billion in unfunded liabilities) reported the second most public pension debt in the country.

New Jersey ($98 billion in pension debt), Texas ($96 billion), Pennsylvania ($70 billion), New York ($63 billion), and Florida ($62 billion) all had unfunded pension liabilities exceeding $60 billion at the end of 2023.

These top seven states account for more than half of the nation’s state and local pension debt.

In per capita terms, Illinois has the most unfunded pension liabilities: $17,786 per resident.

Connecticut ($12,997) and New Jersey ($10,601) were the two other states with public pension debt exceeding $10,000 per capita.

Massachusetts, Alaska, Kentucky, and Hawaii are the next highest, with each state’s per capita pension debt reaching over $7,000 per person, well above the national average of about $4,600.

California, despite its large aggregate pension burden, ranks only 8th in per capita pension debt, with $6,796 per resident.

Texas ranks 29th in per capita public pension debt, at $3,277 per resident, and Florida ranks 33rd, with $2,868 per resident.

Two states, Washington and South Dakota, reported no public pension debt in 2023.

State and local government OPEB debt

Other post-employment benefits (OPEB) primarily consist of unfunded retiree health care promised to public employees. Unlike pension benefits, most governments have not pre-funded these obligations, leaving other post-employment benefits (OPEB) almost entirely unfunded.

Nationally, state and local governments report $958 billion in OPEB debt, which accounts for 20% of their long-term liabilities. On a per capita basis, OPEB debt equals about $2,900 per American.

New York reports the largest aggregate OPEB debt among its state and local governments in the country. With $303 billion in OPEB debt at the end of 2023, New York is responsible for about one-third of the nation’s aggregate OPEB debt.

California has the second-highest OPEB debt, with over $147 billion, followed by New Jersey ($98 billion) and Texas ($77 billion).

Eleven other states have at least $10 billion in OPEB debt.

In per capita terms, New York again ranks first, with $15,017 in OPEB debt for each New Yorker.

New Jersey follows with $10,599 per capita OPEB debt, Delaware with $8,448 per capita, Connecticut with $6,657, and Massachusetts with $6,308.

California ranks 8th, at $3,712 per resident. Texas ranks 10th, at $2,649, and Florida ranks 29th, at $689.

Alaska, Ohio, Utah, Idaho, and South Dakota report OPEB debt of less than $110 per resident.

State and local outstanding bonded debt

Bonds, loans, and notes represent the portion of state and local liabilities explicitly borrowed in credit markets. Unlike pensions or OPEB, which accumulate as estimated unfunded promises, these instruments are contractual debt obligations with fixed repayment schedules.

Nationally, state and local governments report $2 trillion in outstanding bonds, loans, and notes, which represents 41% of their long-term liabilities. On a per capita basis, this equals $6,100 per resident.

California leads with the largest stock of outstanding bonds and loans, totaling $334 billion across state and local issuers.

Texas owes $287 billion in outstanding bonds and loans, followed by New York ($197 billion), Illinois ($98 billion), and Florida ($81 billion).

Together, these five states account for about half of all outstanding municipal bonds and loans.

The per capita rankings differ significantly. Hawaii owes $14,295 per Hawaiian in bonds and loans.

Connecticut and Massachusetts follow, owing more than $10,000 per resident. Texas, New York, and North Dakota, with more than $9,000 per resident, are next.

Montana, Wyoming, Idaho, and Alabama each have less than $2,000 of bonded debt per resident.

All figures in the State and Local Government Finance Report are sourced from the financial reports of state and local governments, most often their annual comprehensive financial reports. The data is from the 2023 fiscal year, the most recent year for which complete data are available. Nevada and a handful of cities and counties across the country have not reported 2023 data. Therefore, the data reported for 2022 was used. Despite a thorough review, data collection at this scale can result in discrepancies. Please alert us if you identify any errors.

For personalized reports on municipal entities or more detailed information on assets, liquidity, and solvency, please visit the GovFinance Dashboard.

If you have any questions or would like to discuss this data more, please email Mariana Trujillo at mariana.trujillo@reason.org or Jordan Campbell at jordan.campbell@reason.org.

Related:

Report ranks every state’s total debt, from California’s $497 billion to South Dakota’s $2 billion

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Best practices to prevent misuse of opioid settlement funds

Mariana Trujillo — Thu, 16 Oct 2025 10:30:00 +0000

To address the damages caused by the growing opioid epidemic, state and local governments filed thousands of lawsuits against opioid manufacturers, distributors, and retailers, accusing them of fueling the crisis through misleading marketing and inadequate oversight. In response, opioid manufacturers reached a $50 billion settlement with state and local governments, intended to help remediate damages caused. This money offered a once-in-a-generation opportunity to expand addiction treatment, prevention, and recovery services. However, states have provided little transparency on how they are using these funds, and the limited disclosures available already reveal concerns.

Opioid settlement funds have already been used for concerts, law enforcement equipment, and budget backfilling, among other purposes. These uses fall short of the settlements’ intent to remediate the crisis. With billions still to be spent over the next decade, it is crucial to establish better financial controls and reporting structures for the use of these funds to ensure they are deployed transparently, efficiently, and in compliance with their legal restrictions to advance evidence-based interventions proven to save lives.

The opioid epidemic has claimed more than 800,000 lives since 1999. As the crisis intensified, policymakers and the public sought to identify its causes. State and local governments filed thousands of lawsuits against opioid manufacturers, distributors, and retailers, accusing them of fueling the epidemic through misleading marketing and inadequate oversight. These lawsuits ultimately led to the national settlement agreements. More than a dozen companies that manufactured, distributed, or aided in the prescription of painkillers, including McKinsey, Johnson & Johnson, Walgreens, CVS, and Walmart, reached settlements totaling approximately $50 billion, to be distributed to various state and local governments over nearly two decades.

The settlements stipulate that funds must be used to support opioid prevention, treatment, and recovery efforts. However, since receiving the funds, many jurisdictions have not provided the transparency, accountability, and prioritization of evidence-based strategies that genuinely address the needs of those most impacted by the crisis. Each state receives a designated portion of the national settlement based on factors such as opioid-related deaths, the volume of opioids shipped, and population size, with funds then subdivided between state agencies and local jurisdictions according to negotiated formulas.

To guide spending, the National Opioid Settlement Agreement includes Exhibit E, which stipulates a non-exhaustive list of approved uses centered on prevention, treatment, and recovery from opioid addiction, and harm reduction programs. States must allocate at least 70% of settlement funds toward these opioid remediation efforts, and some have gone further by committing to use 100% of their funds accordingly. The remaining 30% is allocated as follows: up to 15% for administrative costs and up to 15% for any other purpose.

Core priorities for the use of these funds include developing prevention efforts through supporting different evidence-based education programs; expanding training and increasing access to naloxone, a life-saving opioid overdose reversal medication; increasing education around and the availability of medication-assisted treatment (MAT) such as methadone and buprenorphine or other opioid-related treatment; supporting syringe service programs that reduce the spread of HIV and other infectious diseases through clean syringe distribution; and investing in wraparound services that offer coordinated, comprehensive care for individuals in recovery. Other allowable uses involve peer recovery support, workforce development, care for pregnant and postpartum individuals, and programs addressing the needs of those in the criminal justice system. The strategies listed are evidence-informed and designed to respond to the drivers and consequences of the crisis directly.

While the settlement agreement outlines preferred uses with an emphasis on remediation, the guidelines leave significant room for interpretation—creating wiggle room for states and localities to circumvent evidence-based treatment entirely.

This is what has happened in New Jersey, where state investigators uncovered how the Township of Irvington exploited the flexibility of the guidelines to fund events that had little connection to harm reduction, addiction treatment, or public health.

A report from the New Jersey Office of the State Comptroller revealed that over $632,000 was spent on two “Opioid Awareness” concerts in 2023 and 2024. As reported, thousands were spent on “generators, an ice maker, popcorn machine, cotton candy machine, four flavors of shaved ice, a hot food display stand, and catered food.” These events included celebrity performers and DJ sets. One township employee, Antoine Richardson, received $368,500 in unaccounted payments and steered nearly $470,000 in contracts to businesses linked to himself and his wife. The report concluded that Irvington’s actions violated the intent of the settlement and referred the matter to several state agencies for further review.

There have been issues elsewhere in how the funds have been spent. Scott County, Indiana, used over $250,000 to pay salaries for health and emergency services staff, effectively freeing up their local budget to buy a new ambulance and build a financial cushion for the health department. This is achieved through supplantation, where new dollars are used to fund existing programs, thereby making more general fund revenues available for governments to spend as they wish. This practice is not explicitly prohibited in Exhibit E of the settlement fund agreements. Still, it serves as a workaround that can undermine the intended goal of building service capacity through these funds. A similar example occurred in New York, where advocates noted that the state shifted millions from its addiction agency’s base budget and replaced it with opioid settlement dollars—substituting existing funding rather than using the settlement funds to enhance care. Blair County, Pennsylvania, directed $320,000 toward a long-standing drug court, using the funds in part to cover salary shortfalls for probation officers and aides due to limited state grants and probation fee revenue, rather than investing in new or expanded services.

Other states have directed the money toward law enforcement. Southington, Connecticut, used $18,000 to buy cellphone-unlocking technology for police. Ohio County, Ohio, spent nearly $43,000 on new K-9 and EMT equipment. Michigan counties, including Kalamazoo and St. Clair, purchased jail body scanners, infrastructure that experts argue should be funded through general law enforcement budgets. In West Virginia, $364 million, which is more than half of the state’s total opioid settlement spending for the year, went to police vehicles, jail bills, and salaries, while just 6% supported treatment and recovery. Jackson County took this further by using 90% of its $566,000 allocation to expand a first responder training center, including building a shooting range.

Although the opioid settlements stipulate that funds should be used for specific opioid remediation purposes, they contain no binding requirements, enforcement mechanisms, or clawback provisions if jurisdictions misuse the money. Oversight is left entirely to state and local discretion. Each state executed its own Memorandum of Agreement (MOA) defining how funds are distributed and what reporting, if any, is required.

As much of these funds currently remain unspent, it is incumbent on state and local governments to enact better financial controls and reporting mechanisms to ensure money is used consistently with its designated purpose—remediating the effects of the opioid epidemic.

Uncommitted settlement funds across states

According to the Johns Hopkins Opioid Settlement Expenditures Tracker*—developed by Johns Hopkins, Shatterproof, and KFF Health News—roughly one-third of the opioid settlement dollars tracked from 2022 to 2023 were allocated for specific uses.

The share of funds with reported uses varies significantly by state. Many states provide only limited information, leaving large portions of their initial allocations—sometimes more than 75%—without clear documentation of intended use. By contrast, a handful of states, such as Colorado, Washington, and Delaware, have published detailed reports showing how funds are being allocated.

Most settlement agreements do not require states or localities to publicly disclose how they spend the funds awarded to them. Twelve states had initially pledged to be “100% transparent,” meaning they would report on every dollar of settlement funds and how it is used. Only a few have followed through.

Among the handful of states that provide accessible and detailed descriptions of their uses of the funds is the state of Minnesota, which has a dashboard allowing anyone to track what will be done with the $117 million awarded. The dashboard breaks spending down by county, outlining who received the money, for what purpose, whether the grantee is using an evidence-based program, and the outcome of this spending.

Other dashboards include those maintained by the states of Michigan, New York, and North Carolina. New Jersey and Indiana, instead, publish annual reports outlining county-level spending.

Lessons from the tobacco settlement

The 1998 Tobacco Master Settlement Agreement (MSA) is the closest precedent to today’s opioid settlements, serving as an important cautionary tale. The MSA was a deal between four major tobacco companies and 46 states (plus D.C. and American territories). In exchange for releasing the companies from future Medicaid lawsuits related to smoking-related illnesses, the firms agreed to modify their marketing practices and make annual payments to the states in perpetuity, tied to cigarette sales.

Although the MSA was intended to offset public health costs and fund smoking prevention, it placed no restrictions on how states used the money. Most legislatures diverted payments into general budgets, infrastructure, or debt service rather than public health.

According to a United States Government Accountability Office Report, from Fiscal Years 2000 through 2005, the 46 states party to the MSA received $52.6 billion in tobacco settlement payments. However, only 30% of the funds were allocated to health care, and another 3.5% to tobacco prevention. The rest was split between covering budget shortfalls (22%), debt service on securitized funds (5.4%), infrastructure (6%), education (5.5%), tax reductions (1%), and others.

States are still receiving these settlements. According to the Kaiser Family Foundation, states received $6.8 billion from the MSA in 2024.

Several states securitized the future tobacco settlement cash streams, which means selling the right to receive years of cash flows for a smaller upfront amount, while also passing to bondholders the risk that the companies settled with may not honor the agreed-upon future payment streams, or that tobacco sales would be lower than expected.

This practice is already under discussion for opioid settlements. Some municipalities, such as the Wisconsin Counties Association, have considered securitizing their opioid settlement funds, which would enable them to capture upfront the payment stream that extends through 2038 at a discount.

Securitization is problematic because it trades decades of future remediation dollars for a one-time cash infusion at a steep discount. Governments forfeit long-term funding streams that could sustain treatment and prevention infrastructure. The tobacco experience showed that securitization left many states with little or no settlement revenue in later years, even as smoking-related harms persisted.

Local officials may also be tempted to invest opioid bond proceeds, anticipating that market returns will surpass debt service costs—an approach akin to pension obligation bonds, which carries significant risks.

The outcomes of the tobacco settlement provide clear lessons for the use of opioid settlement funds: Absent binding guardrails and rigorous transparency, both state and local governments face strong incentives to divert or front-load funds in ways that undermine their intended purpose.

Policy recommendations for strengthening opioid settlement spending

When governments are entrusted with funds to address the opioid crisis, they take on a moral obligation to act accordingly. That means investing in what works: expanded access to medication-assisted treatment, naloxone distribution and education, syringe service programs, recovery housing models, and other approaches rooted in evidence and outlined in Exhibit E, including the development of potentially novel treatments.

Misallocating these dollars undercuts both public health outcomes and fiscal responsibility. When rehabilitation-eligible interventions are underfunded, communities miss out on life-saving programs like MAT and harm reduction. Instead, overdose deaths rise, and criminal justice systems bear the cost of repeated recidivism. By contrast, well-targeted settlement spending has the potential to save lives, strengthen communities, and ease the burden on public systems.

Below are recommendations to ensure that the awarded funds are used effectively.

1. Discourage supplantation through clear spending principles

Supplantation, or using settlement funds to replace existing public health dollars, weakens the impact of these resources. State budget officials and attorneys general should issue clear guidance encouraging local governments to deploy settlement funds as a supplemental expansion of care rather than an alternate method of financing existing services.

2. Prioritize external providers for efficiency

Governments should prioritize contracting with external providers rather than providing harm reduction services themselves. Building new publicly operated service programs tends to be costly and slow, while specialized providers are likely to deliver evidence-based care more efficiently and at lower cost.

Partnering with external providers also reduces the risk of budget supplantation, ensuring settlement dollars fund new services rather than displace existing expenditures. Service providers who receive these funds should be held accountable for their use and required to provide an independent auditor’s report detailing the use of these funds if they exceed a minimum threshold. For instance, recipients of federal grants in excess of $750,000 in any year must complete a federal single audit to account for the use of those funds.

3. Prohibit securitization

States should consider adopting explicit bans on securitizing opioid settlement revenues—that is, selling the right to future payments in exchange for upfront cash.

While securitization may appear to offer immediate budget relief, the tobacco settlement experience has shown that it strips away long-term remediation funding, often resulting in communities losing access to dollars even as their needs persist. Prohibiting securitization ensures that settlement payments remain available over time to sustain treatment, prevention, and recovery infrastructure, rather than being consumed in a single budget cycle.

4. Support voluntary frameworks for evidence-based spending

State governments can offer spending guidelines that prioritize effective, research-based strategies such as medication-assisted treatment, naloxone access, syringe service programs, and recovery housing. These frameworks should be developed with input from people with lived experience and members of the affected community to ensure they reflect real needs and can be adapted to local contexts. Highlighting these approaches helps localities focus on interventions that directly reduce harm and improve recovery outcomes.

5. Increase spending transparency

Local governments should regularly publish clear and accessible data showing how settlement funds are spent and what goals they aim to achieve. This can be achieved through either interactive dashboards, such as those used by the state of Minnesota, or yearly reports, as seen in the states of New Jersey and Indiana.

6. Allocate a portion of funds to innovative and emerging treatments

To drive long-term progress in addiction care, state and local governments should dedicate a portion of opioid settlement funds to support the research, development, and piloting of innovative treatment modalities. This includes exploring the therapeutic potential of ibogaine, a psychedelic alkaloid showing promise in interrupting opioid dependence, and GLP-1 receptor agonists, initially developed for diabetes and weight loss, which are being studied for their ability to reduce drug cravings and compulsive use. While more clinical trials are needed, strategic investment in these areas can help expand the future treatment toolkit beyond traditional approaches. Prioritizing innovation ensures that settlements can remediate current harms and foster breakthroughs that reshape addiction care for the next generation.

7. Invite independent spending reviews

Localities can partner with independent institutions to review how funds are allocated and whether spending aligns with the original purpose of the settlements. These reviews help identify areas for improvement and add an extra layer of accountability without requiring new laws or regulations.

8. Include community voices in spending decisions

People affected by addiction should have a role in shaping how funds are used. Community input ensures that spending decisions reflect local needs and improve outcomes for those most directly impacted.

The opioid settlements present a real opportunity to reshape how states support addiction care. Real impact comes from honest reporting, directing funds toward new and innovative treatment options, and strengthening what already exists on the ground. Many harm reduction and recovery programs already serve their communities, sometimes without formal recognition or support. These funds can help legitimize and expand their reach while empowering new groups to fill gaps where services do not yet exist. When used this way, the money can build sustainable systems that save lives and restore trust. The choices made now will determine whether these funds drive lasting progress or fade into missed potential.

*Correction: This piece has been updated to reflect that the data used from the Johns Hopkins Opioid Settlement Expenditures Tracker shows settlement funds received and committed in 2022–2023, not cumulative totals as previously described.

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Over 99% of public pensions failed to meet their assumed rate of investment returns

Mariana Trujillo — Mon, 11 Aug 2025 10:30:00 +0000

From 2001 to 2023, the most recent period with complete data available, 99% of public pension funds failed to meet their average assumed rates of return. The average investment return for public pension systems during this period was 6.5%, well below the average assumed rate of 7.59%.

The failure of public pension funds to reach their assumed rates of return has implications beyond the disappointing investment returns themselves. It means government entities have systematically underestimated the costs of providing public pension benefits to workers, unintentionally underfunding their pensions and creating public pension debt. As of 2023, public pension debt in the United States totals $1.6 trillion, which represents about a third of all state and local government debt.

Because most public pension plans guarantee benefits, regardless of investment performance, it falls on state and local governments to close any gaps between assumed rates of return and actual investment returns. Increasingly, governments are forced to choose between cutting public services and raising taxes to pay for pensions.

The underperformance of investment expectations

Excess returns measure how investments perform relative to expectations. For this analysis, they are defined as the pension’s actual returns minus assumed returns. Positive values indicate that public pensions have achieved returns above expectations, while negative values indicate the opposite.

The assumed rate of return (ARR) is, as the name suggests, the rate of return pension systems assume their investments will generate. It is an investment benchmark determined by a weighted medium-term average expected return for each asset class within a pension portfolio. The assumed return is an essential input for pension contributions and funded estimates.

As displayed in Figure 1, subtracting the 23-year average expected investment returns from the 23-year average achieved returns shows that less than 1% of public pension plans achieved positive excess returns over the past 23 years.

There are significant disparities in the long-term performance of public pension funds. Some plans, such as the Kansas Public Employees Retirement System and the Pennsylvania Municipal Retirement System, have exceeded investment return expectations by having an average return 0.8% (8 basis points) higher than their average assumed rate of return over these 23 years.

However, most public pension systems have experienced unsatisfactory investment return results. For example, the California Public Employees’ Retirement System, or CalPERS, the largest public pension system in the nation, and Chicago’s largest pension fund have a historical performance that falls short of their targets by 1.98% and 2.05% (~200 basis points) annually on average, respectively.

At the bottom of the distribution, meaning they did the worst relative to their assumed rates of return, are Arizona’s Public Safety Personnel Retirement System and Arizona Corrections Officers Retirement Plan, whose returns missed their average assumed rates of return by 3.7% (370 basis points) over the past 23 years.

The consequences of overestimating investment returns

Investment returns are a crucial source of revenue for pension systems. According to the National Association of State Retirement Administrators (NASRA), between 1993 and 2022, investment earnings represented 63% of public pension revenue, more than employee and employer contributions combined.

Public pension investment assumptions directly affect the valuation of liabilities. Unlike the private sector, public pension liabilities are valued based on the expected yield of their returns, a practice called expected-return discounting. This creates a strong incentive for pension systems to overestimate investment returns or increase risk-taking, as a higher assumed rate of return decreases the value of liabilities, seemingly improving the funding optics of a pension plan.

Since pension contributions are estimated based on expected returns, when investments underperform expectations, public pension plans end up with less money than they anticipated—creating unfunded liabilities. Under most defined benefit plans, it’s the sponsoring government—and ultimately taxpayers—who must make up the difference to ensure retirees receive the promised pension benefits.

These shortfalls grow over time. Just like other forms of debt, unfunded pension liabilities accrue interest as the plan misses out on investment gains it would have earned if fully funded. The longer the shortfall persists, the more expensive it becomes.

Addressing the gap early limits this compounding interest. Delaying action allows the liability to snowball, making future solutions more costly.

Since the responsibility of fulfilling public pension promises, regardless of investment returns, ends up on taxpayers, realizing that pension funds cost more than assumed often creates the need to abruptly raise taxes or cut spending to deal with higher-than-expected contributions following a readjustment in investment return expectations. Thus, the overestimation of assumed rates of returns not only leads to inappropriately lower present contributions and increased future costs but also creates a potential shock to public financial planning that can surface at any time.

Another consequence of overestimating investment returns is that, by seemingly hiding the unfunded liabilities or improving funding optics of a pension system, it distorts the credit risk assessments of state and local governments. Understated public pension liabilities and contribution requirements mislead bondholders, counterparties, and lenders about an entity’s actual financial condition, leaving them exposed to more risk than they realize.

Sometimes, policymakers are worried about lowering a plan’s assumed rate of return to more realistic assumed rates of return because the public pension plan’s funded status deteriorates and the full extent of unfunded liabilities becomes more apparent. For pension managers and elected officials, this reckoning can be politically unpalatable, creating perverse incentives to delay it as much as possible, which increases pension costs for future generations of taxpayers and public employees.

Generalized reckoning and lower return expectations

Despite the challenges involved with lowering a public pension plan’s assumption on investment returns, nearly all pension systems have had to adopt lower return expectations to match their historical investment outcomes.

Over the past two decades, public pension funds have gradually lowered their assumed rates of return from an average of 8% in 2001 to 6.9% in 2023, more closely approaching the 23-year national average rate of return of 6.5%.

Annual average assumed rate of return (black) compared to the national 23-year average return of 6.5% (yellow) for US public pension plans.

This generalized readjustment in assumed returns has led to a national increase in unfunded liabilities, as public pension funds have been recognizing that their investments have, and will, yield lower returns than they have been assuming, which means the taxpayers’ cost of providing pension benefits to public workers has been realized to be higher than previously projected.

Annual aggregated unfunded liabilities (red) and funded ratio (blue) for 296 public pension plans covered in the Annual Pension Solvency and Performance Report.

In 2023, almost all public pension plans have assumed rates of return ranging from 6.8% to 7.2%.

As of the end of the 2023 fiscal year, the highest assumed rate of return among the 296 plans in Reason Foundation’s Annual Pension Solvency and Performance Report is 7.5%. Public pension plans in Ohio, Iowa, Oklahoma, Texas, and Alabama top the list of highest assumed rates of return, despite most having underperformed these assumptions over the past two decades

On the other end, the lowest assumed rate of return in Reason Foundation’s Annual Pension Solvency and Performance Report is 5.3%, which is that of Kentucky Employee Retirement Systems. Other public pension plans in New York, Michigan, Louisiana, DC, and Indiana are also among those with the most conservative investment return assumptions.

Despite widespread reductions in assumed returns over the last decade, the most recent edition of the Reason Foundation’s pension report estimates that 86% of public pension plans still assume returns higher than their 23-year average—which suggests that further downward revisions to ARRs are likely on the horizon, along with more increases in unfunded pension liabilities and catch-up hikes in government pension contributions.

Public pensions that have negative (red) or positive (blue) excess returns, defined as 23-year average returns minus the current Assumed Rate of Return (ARR).

Investment return assumptions play a critical role in a public pension system’s funding policy. When return expectations are set too high, they systematically understate the actual cost of public employees’ pension benefits—delaying contributions, distorting financial reporting, and discreetly passing liabilities onto future taxpayers.

Policymakers should ensure that investment return assumptions are grounded in realistic expectations, be mindful of historical investment performance, and proactively adopt funding practices that address shortfalls early to limit runaway public pension costs and debt.

For interactive reports and more analysis visit Reason Foundation’s Annual Pension Solvency and Performance Report.

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Undoing public pension reforms would cost California taxpayers

Mariana Trujillo — Mon, 04 Aug 2025 04:01:00 +0000

Several bills introduced in California’s 2025 legislative session aim to roll back key provisions of the Public Employees’ Pension Reform Act (PEPRA). These bills would reverse many of the cost-containment and risk-management measures that have contributed to stabilizing California’s pension systems and improving the state’s fiscal outlook.

Proponents of these bills argue that pension enhancements are needed to address recruitment and retention challenges, particularly in public safety roles. However, these assertions are not substantiated by workforce data. California’s state and local government turnover rates remain well below both national public sector averages and far below the overall workforce turnover rates in California and the U.S. broadly.

Before lawmakers set the Golden State back on its ongoing path of eliminating pension debt, they should know that these proposals are unlikely to address their stated purpose. In fact, data shows that the recruitment and retention problem may be overstated altogether for California’s public workers.

In 2012, Gov. Jerry Brown led an effort to reform California’s ailing public pensions. The resulting reform, PEPRA, set limits on increasing benefits, which had been a major contributor to the state’s pension debt in the past. Over the last decade, PEPRA reforms have generated substantial savings. CalPERS estimates that the law has already saved the state $5.8 billion, with an additional $26.5 billion in savings projected over the next decade. Undoing these reforms risks reintroducing the same structural imbalances that drove California’s pension liabilities to crisis levels in the early 2000s. Assembly Bills 1383 and 569, as well as Senate Bill 443, would allow for enhanced pension benefit formulas, the return of supplemental defined benefit plans, and expand flexibility for Joint Powers Authorities to offer legacy-style benefits. Each of these proposals would circumvent the critical limits agreed upon in PEPRA.

These bills would have a large impact on the future of pensions for public workers in the state. As they deliberate on these proposals, policymakers should have a clear understanding of the recruitment and retention challenges government employers are actually facing. This analysis examines available data on the subject to determine if the stated objective of these proposals necessitates such drastic measures.

California’s state and local turnover

The following section is based on the best available data, which covers a large variety—but not all—sectors of California’s state and local public workforce.

Anecdotal evidence of increasing public sector quits and hardships in filling these vacancies has popped up all over the country. This is not different in California, but the data paint a different story. According to the California Total Compensation Survey, turnover among state and local employees has remained remarkably stable over the past decade. The same is true for the rest of the country. Between 2016 and 2023, the years reported, California’s public employee turnover averaged just 7.1%, fluctuating within a narrow range and showing no indication of a systemic crisis. By contrast, the national average turnover rate for non-education state and local government workers during the same period was nearly three times higher, averaging 20%.

California’s public employees are far more stable than other segments of the workforce. In 2023, only 7.4% separated from their jobs—less than half the 18.4% turnover rate for all U.S. public employees (excluding education). This advantage does not appear to be a reflection of the state’s private sector. California’s state turnover was higher than national levels across the broader workforce: 37.7% for all U.S. workers and 43.6% for all California workers.

Breaking down California’s public employee turnover reveals that less than half of separations—just 40.5%—are due to voluntary resignations. Nearly half (48.6%) are retirements, and only 10.8% are involuntary separations such as layoffs or dismissals.

The voluntary quit rate—which is perhaps the best measure of workforce retention—has remained low and steady. From 2016 to 2023, California’s public employee voluntary quit rate averaged about 3%, compared to a national public sector quit rate of roughly 10.5%.

The calls to enhance pension benefits in response to perceived staffing problems are not supported by California’s own workforce metrics. The available data shows no evidence that would indicate a recruitment and retention crisis in California’s public sector.

Public safety turnover and vacancy

Concerns about law enforcement recruitment and retention have also been a major focal point in the effort to roll back PEPRA reforms. To evaluate these claims, the best statewide data is available for Bargaining Unit 7 (BU7), which represents state law enforcement personnel responsible for public safety functions, including emergency response, patrol, criminal investigations, and regulatory enforcement. This includes California Highway Patrol officers, park rangers, detectives, forensic science technicians, and similar roles.

According to the 2023 Total Compensation Survey, BU7’s turnover rate was 7.5%—effectively identical to the 7.4% rate observed across California’s broader public workforce. Both remain well below the national turnover rate of 18.5% for non-education state and local government workers, as reported by the Bureau of Labor Statistics.

Like the rest of California’s public sector, nearly half (48%) of the separations in 2023 were due to retirements. The share of separations attributed to voluntary quits has remained relatively stable over time, accounting for 38.3% in 2017 and 42.9% in 2023.

Another measure often cited in discussions of retention is the vacancy rate. In 2023, according to California’s Total Compensation Survey, the vacancy rate for police and patrol officers was 27%, which is much higher than the 20% average across all occupational groups that year—but not unusual. For context, the vacancy rate for patrol officers in 2021 was 15.4%, indicating a notable increase over the past few years. Still, the 2023 rate remains smaller than that of psychiatrists (46%), epidemiologists (34%), dieticians and nutritionists (30%), highway maintenance workers (31%), electricians (31%), and other categories of state workers in California.

Lawmakers should also know that, on the subject of compensation, evidence suggests that retirement benefits aren’t nearly as important to the decision-making of employees as salary. BU7 members received an average of $155,300 in total annual compensation, nearly half of which ($71,805) is already allocated to retirement benefits. If California’s goal is to attract and keep law enforcement staffing, research overwhelmingly suggests that higher salaries are more effective than pension enhancements. Direct pay increases have been shown to be more attractive to employees, offer greater financial transparency, avoid long-term risks, and yield better returns on taxpayer dollars.

Pension benefit expansions may seem easier to implement to policymakers since they defer fiscal impact, but they expose future budgets to risk. As Reason Foundation noted in legislative testimony on Assembly Bill 569:

Cost estimates for pension benefits have frequently proven to understate their ultimate long-term costs, forcing future policymakers and taxpayers to deal with burdensome unfunded liabilities of past promises. Ill-advised pension enhancements with underestimated costs were a major contributor to the explosion in the state’s pension debts in the early 2000s, and this bill would again open the possibility for runaway debt.

Pension reform serves the workforce

According to publicly available workforce data, turnover, vacancies, and voluntary quits among California state employees remain low by national standards, even in public safety roles. While it’s important to acknowledge employee concerns, expanding pension benefits is a blunt and risky response.

The proposals to undo PEPRA reforms being considered would reintroduce long-term fiscal risks and obligations to future generations. Before undoing reforms that have delivered billions in savings and improved the stability of the state’s retirement systems, lawmakers should consider whether more targeted solutions—like salary adjustments—might better address any eventual workforce concerns.

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Debtor Nation 2025

Mariana Trujillo — Thu, 17 Jul 2025 16:00:51 +0000

The size and pace of growth of the national debt are unsustainable. Over the last 12 months, the total public debt outstanding has grown by over $1.5 trillion. With the national debt at over $36 trillion, the United States’ debt-to-Gross Domestic Product (GDP) ratio now exceeds 120%, surpassing the peak reached after World War II.

Interest payments on the national debt are also climbing. In May, Moody’s downgraded the U.S. credit rating from AAA to Aa1.

Still, the political will to address the national debt and federal budget deficits does not exist in meaningful numbers on either side of the political aisle. To get a clearer picture of why the national debt matters to taxpayers and future generations, how we got here, who holds this debt, and what would need to be done to rein it in, Reason Foundation built Debtor Nation.

Why the national debt matters

The national debt is expensive: Debt incurs high interest costs, diverting taxpayer funds from productive uses to pay interest to bondholders.
Debt burdens economic growth: Interest payments on the national debt consume a rising portion of the national budget and gross domestic product (GDP). This borrowing stifles economic growth by absorbing capital from the private sector, making borrowing more expensive for taxpayers and businesses.
Debt imposes unfair costs on future generations: Future taxpayers are on the hook to pay for today’s deficits. They must accept either higher taxes, inflation, or reduced government services.
The debt is becoming unaffordable: The current debt and projected reliance on debt increases the risk of higher borrowing costs, insolvency, and default.

How we got here

The annual U.S. debt-to-GDP ratio reached 120% in 2024, exceeding levels last seen immediately following World War II.
Federal expenditures consistently outpace revenue, driving continued debt growth. Given that federal receipts bounce between 15% and 20% of GDP, spending more than 20% of GDP is simply not sustainable in the long term.
Federal debt growth transcends party lines, driven by major events and policy decisions across presidential administrations and congresses.

Who holds the federal debt?

The federal debt is divided between intragovernmental holdings (primarily the Social Security Trust Fund) and debt held by the public.
Public debt holders include domestic investors, foreign entities, and the Federal Reserve, which has significantly increased its holdings in recent years.
Foreign ownership of U.S. debt represents a substantial portion, raising opportunities and potential economic stability risks.

Where does the federal government spend money?

Mandatory spending, including Social Security and Medicare, accounts for a significant portion of federal outlays, exceeding 65% of total annual expenditures.
Interest payments on the national debt have reached historic levels, creating additional budget pressure.
At $908 billion, defense spending remains the largest discretionary budget item, dwarfing other discretionary spending categories.

Conclusion

You can view the full Debtor Nation data visualization tool here. The tool includes more insights into our national debt, along with a calculator that shows exactly what changes the federal government would need to make to help us climb out of the situation the national debt has put taxpayers and future generations in.

The post Debtor Nation 2025 appeared first on Reason Foundation.

Public employees are not underpaid

Mariana Trujillo — Thu, 10 Jul 2025 10:00:00 +0000

It is commonly believed that public employees and teachers earn less than their counterparts in the private sector, and this compensation disparity is undermining the ability of government employers to retain staff and recruit talent. This assertion often leads to demands for either increased pension benefits or higher salaries. The general public and policymakers have embraced this statement as an unquestioned fact, even though it is not. 

On average, public employees earn 42% more than private sector employees. But averages are not very meaningful in this context. The public sector is more white-collar than the private sector. A larger share of public employees hold college and graduate degrees than those in the private sector. Therefore, it is expected that the average public employee would earn more than the average private sector employee.

To assess the competitiveness of public employee compensation, it is important to evaluate how public employees are paid compared to private workers in the same industry, with the same education level, and with similar aptitudes. In all these comparisons, when adjusted for work hours and benefits, there is no meaningful compensation gap between public and private employee pay. In fact, when adjusting for aptitude, the results indicate that public employees, including teachers, sometimes earn more than their comparable private sector counterparts.

Employees accept the best job offer available to them. If public employees were systematically ‘underpaid,’ that is, making less than they would if doing the exact same job in the private sector, why wouldn’t they join the private sector? The mere existence of public employees suggests that their total compensation, accounting for non-monetary benefits of public sector work such as meaning and job security, must be fair for the work asked of them.

This piece examines the compensation of public and private sector employees, making adjustments that are often overlooked in public discourse.

Average salaries are higher in the public sector

According to the Bureau of Labor Statistics, state and local public employees earn wages that are, on average, 26% higher than those of private sector workers. When benefits are taken into account, this pay disparity increases to 43%.

On average, a larger share of public employees’ compensation is composed of benefits, with benefits representing 38% of total employee costs for state and local employees, compared to 30% in the private sector.

These public employee benefit costs are likely understated. While the Bureau of Labor Statistics accounts for direct employer contributions, it does not capture the retroactive contributions governments often make to address past underfunding. For example, a city may have paid in full the mandatory employer pension contributions for its teachers in 2010, only to realize years later that those contributions were inadequate due to overly optimistic investment assumptions. To close the gap, the city may issue pension obligation bonds, utilize lottery revenues, or amortize the shortfall over future budgets. These catch-up contributions—often made in lump sums—mean that benefit costs and total compensation for teachers employed in 2010 were understated; however, this correction is not reflected in the BLS compensation data.

Another reason public employee benefit costs are often understated is that state and local employers tend to provide more generous retiree healthcare benefits than private employers, known as other post employment benefits (OPEB). These benefits are typically not pre-funded, meaning employers do not set aside money to cover these costs in advance; instead, they pay as the benefits are used. Even when employees and employers make OPEB contributions during working years, these amounts are often insufficient to cover future obligations. Therefore, under current funding practices, actual OPEB costs are generally not directly linked to specific employees; instead, they become a collective employer obligation incurred by government employers as former employees retire and draw the benefits.

But public and private sector employees are not the same

Though these averages describe the compensation of public and private sector workforces, there are also important characteristic differences in these workforces that should be understood. This is not an apples-to-apples comparison, as the pool of employees in the private sector is not the same as the pool of employees in the state and local government. In comparison to the public sector, the private sector hires more service-sector workers and fewer specialized labor, having a higher proportion of its labor force made up of part-time workers and minimum-wage employees who receive fewer benefits than professionals.

In fact, according to the Bureau of Labor Statistics, 58% of state government jobs and 48% of local government jobs require an associate’s degree or higher, while only 27% of private sector jobs do. This structural difference means a meaningful assessment of public employees’ compensation should attempt to adjust average salaries for industry, experience, education, and aptitude.

Adjusted public and private sector salary comparison

How do public employees get paid in comparison to private sector employees with the same educational attainment? According to the Bureau of Labor Statistics, as discussed, public employees make more on average—but when breaking down by education, it is revealed that those with an associate’s degree or higher who work for state or local governments earn less than their private sector counterparts. This finding also holds true for public employees in the federal government.

This analysis, however, doesn’t account for benefits, which tend to be much more generous in the public sector than in the private. A study from the Center for Retirement Research concluded that while public-sector wages were generally lower, the inclusion of defined-benefit pensions and retiree healthcare often brings total compensation to parity or higher compared to private-sector jobs.

Additionally, a paper published in the American Economic Association Journal that adjusted compensation for both benefits and worker aptitude found that “public sector workers, especially local government ones, on average, receive greater remuneration than observably similar private sector workers.”

But even when accounting for benefits, some estimates still found that one specific kind of public employee—teachers—are paid less than other college graduates. The Economic Policy Institute (EPI) found that public teachers’ weekly wages, when controlled for summer break, age, education, and state of residence, were 26% lower than those of other college graduates—a record-high gap and a significant increase from ‘just’ 6% in 1996. After accounting for benefits, the EPI still found that teachers earn 17% less, and that teachers’ total compensation, adjusted for inflation, has not grown in decades.

However, comparing salaries across fields by controlling for education and years of experience doesn’t reveal much. There are significant disparities among college majors and industries. For example, according to the 2023 Census American Community Survey, the median computer science graduate with a bachelor’s degree only earns $101,600 a year, while the median Marketing graduate only earns $75,930—yet few people would immediately conclude that computer science majors are “overpaid”, and marketing majors “underpaid”. Not all college graduates and fields of work have the same earning potential. Not all jobs performed by college graduates are equally demanding. Additionally, it is also important to note that degree choice tends to reflect the underlying aptitudes of students, which cannot be assumed away.

Wage differences do not necessarily indicate a problem. It can be a reflection of intrinsic differences in populations and the sacrifices and competitiveness of different fields. The gap in earnings between teachers, or all public employees, and other college graduates in the private sector could be explained by self-selection effects. It is possible that the most career-driven and productive college graduates tend to be drawn to the private sector, which is willing to offer one-to-one salaries proportional to individual competence, whereas the public sector opts for generalized collective wage agreements—a system that research repeatedly shows tends to drive away the most productive employees.

Going further than the EPI, a paper written by Jason Richwine and Andrew Biggs with Heritage Foundation aimed to investigate the public teacher pay gap, adjusting for aptitude. Though teachers tend to be paid less than other college graduates, the paper concluded that the wage gap between Teachers and other graduates was driven by the fact that, on average, the teaching profession tends to attract college graduates with lower aptitudes than the average college graduate.

For example, students who intended to be education majors, on average, scored in the 38th percentile on the SAT, which is significantly below the average for college-bound seniors. Another paper found that those with the highest ACT scores are less likely to become teachers, and the most likely to leave the profession.

Richwine and Biggs found that replacing educational attainment with a more meaningful measure of competence eliminates the observed teacher pay gap, as non-teachers of the same aptitude level tend to earn the same as teachers (controlling for summer break). The authors find that public teachers’ total compensation is 52% higher than their estimated fair-market value.

This suggests that comparing teachers’ wages to those of other college graduates is inappropriate, as teachers’ formal education credentials aren’t a reliable predictor of their actual market-earning potential. This is further supported by another study, which found that just 3.7% of Georgia elementary teachers and 5.4% of high school teachers who left their jobs for a non-education field were earning more than the minimum teaching wage a year after their exit.

Public employees also receive a benefit that cannot be captured in balance sheets. Most notably, public employment is known for its job security, a feature Richwine and Biggs estimated employees value at about 8.6% of compensation.

But, are the work hour estimates fair? Aren’t teachers more likely to work overtime? Not according to the data available. A 2014 paper using the American Time Use Survey (ATUS) found that teachers work on average 39.8 hours per week, while nonteacher college graduates work 41.5 hours. In 2019 update, Dick Startz applied the same methodology to more recent ATUS data and confirmed the pattern: full-time teachers averaged 42.2 hours per week, while similarly educated nonteachers worked 43.2 hours.

You get what you pay for

The consensus among analyses is that, on average, when accounting for experience, education, and benefits, public employees tend to make about the same—or more—than equivalent private sector workers. This doesn’t mean that compensation is always perfectly efficient, or that bargaining is irrelevant; instead, it suggests that observed compensation levels do not indicate a systemic undervaluation of public sector work.

This shouldn’t be much of a surprise. Compensation—in total terms, including salary, work conditions, and benefits—is accepted by workers who would have gladly accepted better employment if it had been offered to them. Employees take and stay in the best job they could find, one that maximizes each person’s preferences and values. Beyond compensation, for example, some individuals value a work-life balance and meaning, while others prioritize novelty and growth. Some can speak well, code effectively, or lead; others cannot. If public employees were ‘underpaid,’ why wouldn’t they simply take an equivalent private sector job that pays more? If compensation is inappropriate, why wouldn’t agencies or government branches compete in a salary arms race to poach the best people? If they can’t or won’t, that suggests their total compensation is likely fair for the work asked of public employees.

If public employees were systematically underpaid, we would simply observe large-scale exits to the private sector, which we don’t. In fact, public employee and teacher turnover rates tend to be much smaller than those of the private sector.

Despite much research indicating otherwise, public employees often report feeling underpaid. This persistent grievance suggests that government employers should consider shifting their compensation so that salaries represent a larger share of total compensation, in lieu of benefits, as is more common in the private sector. It might also be worth considering offering performance bonuses or more individualized compensation, rather than relying solely on rigid pay bands and structured rules.

It is possible that, though public employees are not ‘underpaid’, governments could still attract better talent by increasing compensation. Of course, there must be an optimality analysis in terms of talent and compensation. Higher pay can help attract a broader pool of applicants, allowing employers to be more selective. But across-the-board raises can lead to diminishing returns or reward underperformance.

The popular sentiment that government workers are systemically underpaid doesn’t hold up under scrutiny. Broad claims of underpayment overlook essential differences in the composition of public and private workforces. When accounting for education, work hours, benefits, and aptitude, most analyses find that public sector compensation is, on average, equivalent and sometimes more generous than in the private sector.

The post Public employees are not underpaid appeared first on Reason Foundation.

With additional plans reporting, total unfunded public pension liabilities in the U.S. grow to $1.61 trillion

Mariana Trujillo — Tue, 17 Jun 2025 13:00:00 +0000

In the nine months since we released Reason Foundation’s Annual Pension Solvency and Performance Report, we have made several important updates to the tool’s overall structure and added additional data from state and local public pension systems.

The tool has incorporated the data released by public pension systems since our original report was published in September 2024. Public pension systems that ended their fiscal years in June or July of 2024 have been updated. With these additions, the total unfunded public pension liability was $1.61 trillion, up from $1.59 trillion. Correspondingly, the median funded ratio across public pension plans decreased marginally from 76% to 75.8%.

With the additional data, Reason Foundation’s stress-test projections for public pensions have worsened slightly. For example, under a major market shock, defined as a 10% loss, comparable to the Great Recession of 2007-2009, or the temporary stock market decline after President Donald Trump’s ‘Liberation Day’ tariff announcement, unfunded liabilities are now projected to reach $2.29 trillion by 2025, up from our previous estimate of $2.16 trillion.

Total public pension assets were $5.07 trillion, a slight increase from the $5.05 trillion previously reported.

The average assumed rate of return for public pension systems fell marginally from 6.89% to 6.87%, continuing the gradual shift toward more conservative investment expectations amid current economic conditions.

Overall, the updated data reinforces previously identified public pension trends. Insufficient public pension contributions, ongoing asset-liability mismatches, and improving, but still overly optimistic, investment return assumptions are ongoing issues for pension systems.

A significant addition to the tool in this mid-year update is the introduction of the state tracker. While previous versions provided individual state and plan data in separate sections, the state tracker now consolidates all relevant public pension data into a single, easily navigable area. This integration enables direct comparisons of pension funding ratios, investment returns, and liabilities across states within one unified interface.

Structural refinements to enhance clarity and ease of use have also been made. Navigation labels have been streamlined, with sections previously titled “Funding Health & Risk Assessment” simplified to “Funding Health” and “Asset Allocation & Projected Returns” shortened to “Asset Allocation.” These changes aim to improve the user experience, especially those accessing information on mobile devices or smaller screens.

We hope these updates to the Annual Pension Solvency and Performance Report can help inform policy discussions and decisions around pension funding strategies at the local, state and national levels.

The post With additional plans reporting, total unfunded public pension liabilities in the U.S. grow to $1.61 trillion appeared first on Reason Foundation.

Mariana Trujillo, Author at Reason Foundation

San Diego’s government needs more competition, not more taxes

State and local governments are drowning in debt

Connecticut’s pensions shouldn’t make political investment in WNBA team

Most public pension contributions go toward paying off debt, not funding benefits

Differences among states

Amortization rises while normal cost stays stable

State and local governments have footed the increase

Report: Cities have $1.4 trillion in debt

City governments’ long-term debt

City government pension debt

City government OPEB debt

City governments’ outstanding bonded debt

Related:

Report: County governments have $757 billion in debt

Long-term debt

County pension debt

Other post-employment benefits debt

Outstanding bonded debt

Related:

Pension Reform News: Reason’s annual report finds $1.5 trillion in aggregate pension debt

Study: Illinois, Connecticut, Alaska, Hawaii, New Jersey and Mississippi have the most per capita pension debt

The public pension plans with the most debt, best and worst investment return rates

Report: State and local pension plans have $1.48 trillion in debt

Unfunded public pension liabilities

Funded ratios of public pensions

Changes in investment strategies

Investment performance

Employer contributions and cash flow

Conclusion

Webinar

Report ranks every state’s debt, from California’s $497 billion to South Dakota’s $2 billion

State governments’ long-term debt

State public pension debt

Other post-employment benefits debt

State governments’ outstanding bonded debt

Report: State and local governments have $6.1 trillion in debt

Report: State and local governments have $6.1 trillion in debt

State and local government long-term debt

State and local government pension debt

State and local government OPEB debt

State and local outstanding bonded debt

Report ranks every state’s total debt, from California’s $497 billion to South Dakota’s $2 billion

Best practices to prevent misuse of opioid settlement funds

Uncommitted settlement funds across states

Lessons from the tobacco settlement

Policy recommendations for strengthening opioid settlement spending

Over 99% of public pensions failed to meet their assumed rate of investment returns

The underperformance of investment expectations

The consequences of overestimating investment returns

Generalized reckoning and lower return expectations

Undoing public pension reforms would cost California taxpayers

California’s state and local turnover

Public safety turnover and vacancy

Pension reform serves the workforce

Debtor Nation 2025

Why the national debt matters

How we got here

Who holds the federal debt?

Where does the federal government spend money?

Conclusion

Public employees are not underpaid

Average salaries are higher in the public sector

But public and private sector employees are not the same

Adjusted public and private sector salary comparison

You get what you pay for

With additional plans reporting, total unfunded public pension liabilities in the U.S. grow to $1.61 trillion