More than a quarter of U.S. states had public pension liabilities that were greater than their total revenues in fiscal 2012, Moody's Investors Service said in a report on Thursday that also indicated the struggle to pay for public employee retirement had peaked.
Altogether, the median ratio of states' adjusted net pension liabilities to their revenues grew to 63.9 percent in fiscal 2012 from 45.1 percent in fiscal 2011, according to Moody's.
But fiscal 2012 ended for most states on June 30, 2012, and since then, a run-up in financial markets has helped shrink public pension shortfalls. Investment returns provide the lion's share of the retirement systems' revenue, and in 2013, pensions' holdings reached record amounts.
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That could make fiscal 2012 the high-water mark for pension problems that have rocked state governments over the last decade and led to a wave of pension reforms recently, according to Moody's.
Pension liabilities "for 2012 may reflect a cyclical peak as a result of subsequent strong market returns and a rising interest rate trend," the rating agency said.
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Still, improvements in fiscal 2013 may not be enough to wipe out the biggest unfunded liabilities.
Illinois had the worst funded pension in fiscal 2012, with its burden equal to 318 percent of the state's entire revenue.
Strong equities and rising interest rates likely brought that liability down by 9 percent, Moody's estimated, but that still left the state with a $173 billion pension bill in fiscal 2013.
After Illinois, Connecticut had the biggest pension problem in fiscal 2012, with its liability equal to 243.4 percent of state revenues, followed by Kentucky at 211.3 percent, according to Moody's.
Hawaii, Louisiana and Maryland had pension liabilities that were more than 150 percent of revenues.
Massachusetts, Maine, Texas, Kansas, New Jersey, Colorado, Pennsylvania and West Virginia rounded out the list of 14 states where pension liabilities were more than 100 percent of total government revenues.