Florida ranks just outside the top fifth of states when it comes to the total load of debt that it carries according to a recent report issued by J.P. Morgan. This is good news both in terms of the ability of the state to meet its obligations to its current workforce and retirees and also in terms of its ability to invest in other important priorities in coming years.
J.P. Morgan manages approximately $70 billion in municipal bonds across its asset management business. As such, it is very much focused on the total indebtedness of the fifty states. That total indebtedness includes not only bonds issued by the states, but also unfunded liabilities related to their pension obligations and health benefits owed to their retirees. The last of these is referred to as other post-employment benefits or OPEB as it is more commonly known.
In its recently released report, The ARC and the Covenants 2.0, the firm ranks all fifty states on the combined total of:
Both figures are expressed as a percentage of state revenue collections.
The ARC in the title refers to the Annual Required Contribution necessary to fully fund its obligations to its retirees, while the covenants refer to covenants attached to bonded indebtedness.
To put the two components of total state debt in context, the fifty states have approximately $500 million in bonded indebtedness, while unfunded pension and OPEB obligations total two to three times as much at $1 – $1.5 billion.
As shown in the chart above, Florida ranks 11th in the nation in the total amount of debt service as a percentage of its annual revenue collections. The bar chart has two different segments. The segment in blue represents what the state currently pays in servicing its debt of all kinds while the black segment represents the additional amount the state would need to pay to fully fund its ARC obligations over thirty years. For Florida, the total of the two bars represents approximately 7% of its annual revenue collections while the black segment represents approximately 2%.
This is good news for the state for two reasons. First, it suggests that a significant portion of its obligations to its workforce is currently covered and fully funding these obligations should be possible without significant additional stress on the budget. The state’s public workforce plays a critical role in providing services to its residents. The state’s established obligations to that workforce must be fulfilled. The small additional amount that would need to be dedicated to fully amortize that obligation should also alleviate pressure to reduce those benefits, or require higher public employee contributions, in the future.
Second, unlike states to the far left of the chart above, Florida can avoid pressure to reduce funding to critical public service priorities such as education, affordable housing, transportation and environmental protection in order to bring its contributions to ARC to acceptable levels.