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States struggle with retirement costs to balance budgets -report

NEW YORK, Nov 2 (Reuters) - Many U.S. states are balancing their budgets by underfunding retirement plans and taking other short cuts that create more problems down the road, according to a report released on Thursday by the Volcker Alliance.

The report, which analyzes budgets and financial reports from fiscal year 2015 through October 2017, assigns grades to all 50 U.S. states based on forecasting, legacy costs, budget maneuvers, reserve funds and transparency.

Of the five categories, state governments scored the worst on their handling of legacy costs, which include retirement payments for public employees and healthcare for retirees.

“One of the immediate concerns is that legacy costs are burdening an awful lot of states,” said William Glasgall, director of the state and local program at the Volcker Alliance, a New York-based non-partisan public policy nonprofit.

With weak revenue growth and rising costs, many states have opted to delay retirement and retiree contributions to balance current-year budgets, leading to unmanageable costs later on, the report said.

More states received the lowest grade, a D-minus, for legacy costs than in any other area.

Hawaii, Illinois, Kansas, Massachusetts, New Jersey, Pennsylvania, Texas, Virginia and Wyoming were at the bottom of the grading scale in the category. Top performers were Iowa, Idaho, Nebraska, Oklahoma, Oregon, South Dakota, Utah, and Wisconsin.

A smaller number of states, including Illinois, Kansas and New Jersey, received low grades in the budget maneuvers category for their practice of using one-time revenue to pay for ongoing expenses.

However, a hefty number of states received top grades in that area.

“The pressure is great to balance budgets using one-time maneuvers or underfunding long-term obligations,” Glasgall said. Often public services, including education and infrastructure, suffer as a result, he said.

States largely received mid-range scores in the categories of budget forecasting, reserve funds and transparency.

Reporting by Laila Kearney; Editing by Daniel Bases and Steve Orlofsky