Weak investment performance and insufficient contributions will cause total unfunded liabilities for U.S. state public pensions to balloon by 40 percent to $1.75 trillion through fiscal 2017, Moody's Investors Service said in a report on Thursday.
The report comes amid increasing concern over America's ability to pay promised retirement benefits to public employees without draining state budgets.
It has been a tough year for the funds, which earned a median 0.52 percent on investments in fiscal 2016 versus their average assumed return rate of 7.5 percent, Moody's said.
In fiscal 2015, aggregate adjusted net pension liabilities stood at $1.25 trillion.
Half of U.S. states did not put enough money into their retirement systems in 2015 to curb the growth of unfunded liabilities. That held true even when states met the contribution levels their actuaries told them were necessary, Moody's found.
The nation's 100 largest public pensions were funded just below 70 percent as of June 30, according to a separate study on Thursday by consulting firm Milliman. That study found investment returns to be 1.31 percent and a funding deficit of $1.38 trillion.
Yet well-known problem spots - Illinois, New Jersey, Connecticut and Kentucky - are atypical, according to the Center for Retirement Research at Boston College.
Even when including debt and retiree healthcare costs, "the outlook at the state and local level is extremely heterogeneous," the researchers wrote in a brief this week. "A small minority face dire circumstances, but many jurisdictions appear to have their costs under control."
By most measures Illinois ranks worst, with unfunded liabilities of nearly $193 billion in 2015 according to Moody's. Other measures put the number at $111 billion.
"We cannot invest our way out of this hole," said Richard Ingram, executive director of the Teachers' Retirement System of Illinois, at a New America Alliance event in New York on Thursday.
He blamed underfunding on "political failures" and a "lack of discipline," noting that the state never met its full annual contribution in seven decades.
Though the fund only recently lowered its assumed rate of return to 7 percent, it could drop the rate again to 6 percent this spring, he said.
"The last couple years have been bad," he said of investment returns. "You're going to see a slide" in funded status.