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Rhode Island State Debt Among Highest in US

Saturday, January 11, 2014


Rhode Island's total state debt is at $18.86 billion according to a new report out this week. Equivalent to a per capita number of $17,960 for each resident, the amount is comparatively not so bad when contrasted to many other states.

The amount of outstanding debt in the state — a reflection of bonds, leases, and other government-issued debts not inclusive of unfunded public pension and other post employment benefit liabilities — totals $2.89 billion and places the state 16th in the nation on a per capita basis according to the national public policy group State Budget Solutions.

The figures don't include municipal or federal debt.

Varying concerns about the future of Rhode Island debt

“You look at those numbers, everything (appears relatively) fine,” said Leonard Lardaro, an economics professor at the University of Rhode Island. “My problem is that's the past.”

Framing the burden of debt against Rhode Island's gross state product and predictable future growth, “We're going to have a tough time ... bringing the debt down,” Lardaro said, pointing to a foreseeable “train wreck” in the form of legalized gambling in Massachusetts.

“That will be a major, major hit to our state tax revenues,” Lardaro contends. “We're going to have a hole to fill and that's going to be difficult.”

Edward Mazze, another URI professor in the college of business administration, said the state's debt level was relatively high but would be projected to decrease over the next three years if there was no issuance of new tax-supported debt other than that included in the capital budget.

“With two major current uncertainties, namely, the outcome of the court-requested negotiations on the pension system and the controversy surrounding the payment of 38Studios moral obligation bonds, the state's debt level can rise higher,” Mazze continued.

Lardaro said a default on the 38Studios loan could prompt a downgrade in the state's credit rating.

SBS claims states have much larger unfunded liabilities

“One of the best ways to look at it, beyond the per capita figures, is how our figure compares to what states traditionally treat as debt,” said Cory Eucalitto, an editor and author of the SBS' fourth annual state debt report.

Most state governments focus exclusively on the “outstanding debt” figure, he said, which doesn't include unfunded pension liabilities that make up $3.9 trillion of the nation's $5.1 trillion total state debt by SBS estimates.

When state officials do count unfunded pensions, Eucalitto said they do so assuming overly optimistic future investment returns.

“We use a market-valued discount rate which, if adopted, would give states the best guarantee of being able to meet their pension promises,” he said. “For example, we calculate a $15 billion unfunded pension liability for Rhode Island. Using the same plans and valuations, the state itself only calculates a $4.8 billion unfunded liability.”

Pension assessment contested

State actuaries contested that assessment by the SBS with GoLocal.

In a year end report this month from the Rhode Island auditor general's office, the state pegged unfunded liabilities (pension costs for state employees including teachers, judges, and state troopers) at $4.5 billion as of June 30, 2013 — an improvement from the prior year's number cited by the SBS.

Why the discrepancy? Rhode Island Auditor General Dennis Hoyle reports the system's actuarial investment return assumption is 7.5 percent for all plans, except for a small portion covering judicial retirement.

The SBS assumes a more conservative, lower rate of future return on those retirement system investments.

The National Association of State Budget Officers Executive Director Scott Pattison said the SBS based their unfunded pension calculations on market value. Because of that, “the figures will look higher than what other organizations might report.”

Because of a data lag, the state's recent pension reforms are not reflected in the SBS report.

Future return predictions at odds

“Funding a pension benefit requires the use of projections, known as actuarial assumptions, about future events,” namely, market returns, writes the National Association of State Retirement Administrators in a report last month.

“An investment return assumption that is set too low will overstate liabilities and costs.” On the other hand, “a rate set too high will understate liabilities.”

According to the national association, actual median public pension fund returns over a 25-year period ending June 30, 2013, were pegged at 8.6 percent — nearly a full percentage above the average national assumption of 7.72 percent made over that time.

Rhode Island's investment performance in fiscal year 2013 was above plan expectations.

Comparison to New England

Rhode Island's total debt figure ranks in the middle of states in New England, where Connecticut leads on a per capita basis with a total debt of $112.37 billion — $31,298 for every resident in the Constitution State — according to the SBS findings.

Massachusetts' gross amount of debt is higher than Connecticut's, but lower based on population, at a total $129.55 billion or $19,493 for each resident.

New Hampshire follows behind Rhode Island, with $18.46 billion total and a per capita figure of $13,951, while Maine is next with $16,717,250 ($12,577 per capita).

Vermont has the lowest debt level in New England, at $7.87 billion: a per capita amount of $12,566.

Across the nation, Alaska leads in debt per capita, owing $40,714 for each resident.

So what can be done?

Eucalitto, the SBS report's author, said pension reforms should help to improve the situation in Rhode Island, “if leaders are able to stay dedicated to meeting their funding requirements.” But he said converting plans fully to defined contribution systems would go even further.

“The state's debt position can be improved if we pay more attention to budgeting and revenue forecasting and the state's established credit guidelines,” Mazze said.

“The problem with Rhode Island is we tend to be too static,” according to Lardaro.

“Our debt isn't a nightmare,” he said. But looking narrowly at those figures “misses the point.”

“We need growth more rapidly than debt accumulation.”


Related Slideshow: New England States With the Most State Debt

Prev Next

6. Vermont

Debt Per Capita: $12,566

National Rank: 36th Most

Total Debt (in thousands): $7,866,666

National Rank: 49th Most

Debt as a Percentage of Gross State Product: 29%

Prev Next

5. Maine

Debt Per Capita: $12,577

National Rank: 35th Most

Total Debt (in thousands): $16,717,250

National Rank: 42nd Most

Debt as a Percentage of Gross State Product: 31%

Prev Next

4. New Hampshire

Debt Per Capita: $13,951

National Rank: 27th Most

Total Debt (in thousands): $18,425,567

National Rank: 41st Most

Debt as a Percentage of Gross State Product: 28%

Prev Next

3. Rhode Island

Debt Per Capita: $17,960

National Rank: 16th Most

Total Debt (in thousands): $18,863,153

National Rank: 40th Most

Debt as a Percentage of Gross State Product: 37%

Prev Next

2. Massachusetts

Debt Per Capita: $19,493

National Rank: 12th Most

Total Debt (in thousands): $129,550,263

National Rank: 10th Most

Debt as a Percentage of Gross State Product: 32%

Prev Next

1. Connecticut

Debt Per Capita: $31,298

National Rank: 3rd Most

Total Debt (in thousands): $112,372,072

National Rank: 12th Most

Debt as a Percentage of Gross State Product: 49%


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Converting plans fully to defined contribution systems would go even further? Unbelievable! Here's a better idea. Let's tax the wealthy. Then if they leave the state tax them again. Call it a departure tax. Then when they return, which they always do because Rhode Island is one of the best states in the country, hit them twice as hard with a return tax. If these selfish ingrates complain hit them with a whining tax. Hopefully, this will frustrate them to the point of leaving Rhode Island forever, thus making my morning commute all the more pleasurable.

Comment #1 by Jonathan Bainsworth on 2014 01 11

Jonathan Bainsworth: Define "wealthy". The broadcast media made a big deal this week about the typical member of Congress being a millionaire, yet I think the typical middle class retiree is a millionaire on retirement. Millionaire and wealthy do not mean what they once did.

Comment #2 by Charles Beckers on 2014 01 11


Comment #3 by LENNY BRUCE on 2014 01 11

I would consider many retired state employees, fire fighters, police and teachers very wealthy.

work for 20-30 years. collect a pension for 30-40. with health insurance, social security.

I envy those folks. their pensions make them 1%ers. you would have to have millions saved up to earn the pensions they get. and they don't have to worry about the stock market or interest rates going up or down.

that is wealth.

Comment #4 by john paycheck on 2014 01 11

These figures mean nothing unless they are shown in relation to per capita income.

Connecticut is in much worse shape relative to per capita income. They are near 100%.


Comment #5 by Jim D on 2014 01 11

Yes Johnathan Bainsworth, do tax the wealthy who come and go from the state. They're known as "snow birds" in Florida. They are the teachers, fire fighters, police and other "State" employees who have worked as John Paycheck said for 20-30 years and have "retired" with generous pensions and benefits....yes lets tax those citizens and then when they get sick of the taxes and its cutting into their "wealth" they will sell their homes here in RI and then just stay in their homes in Florida!....those are the wealthy ones here in RI!

Comment #6 by Jennifer Collings on 2014 01 12

The facts are we spend too much, tax too much and do too much of the wrong things in our GA. Plain and simple, we have to build our business base to employee more people who contribute to the tax roles.
Until this state gets that straight we will never recover in a hundred years. The state can't even admit their calculations are not correct with expecting 7.5% return on investments vs. the correct 6%. I mean how can we expect the people running or ruining this state to improve anything. And yes, 70 years of unionized Democratic control has gotten us right where we are now and these some folks will not make the necessary changes to correct the many problems.

Comment #7 by Gary Arnold on 2014 01 12

That's the ticket Gary, we need jobs here in RI for citizens to get off of Government entitlement programs, but that in itself will be a problem, cause once the government gets you into their spider web of programs they cant or wont get free....it would have been great if our "leaders" had tried to entice the gun manufactures from CT to come here...lol...right. We are going to be in a constant state of a "polar vortex" of spending and taxing until they take to only steps to reduce the spending and build the tax base.

Comment #8 by Jennifer Collings on 2014 01 12

Coast to coast, states are leaving taxpayers on the hook for massive debt payments over the coming decades as state governments continue to abuse their metaphorical credit cards.

A new report released this week says state governments have more than $5.1 trillion in debt, largely because of pension obligations to former and current state employees, which states now lack the assets to pay off. Pension debt accounts for more than $3.9 billion of that total, but the report also includes outstanding bonded debt, unemployment compensation trust fund debt and debt in the form of "other post-employment benefits," or OPEB, which is closely linked to pensions and includes retired public employees' health-care costs.

Though the totals vary significantly from state-to-state, it adds up to an average of more than $16,000 of debt for each man, woman and child in the United States.

Given states' propensity for putting things on their credit cards, it's those children who probably have the most to worry about.

Bob Williams, president of State Budget Solutions, the fiscally conservative state policy think tank that authored the report, said the trillions of dollars of debt are the result of "broken promises, reckless leadership and fiscal irresponsibility."

"Millions of Americans who interact with or rely on their state governments each and every day must understand their state's true fiscal condition," Williams said. "Unaddressed state debt will take its toll on state budgets as the money once expected to fund education, health care and more will have to be redirected to pay for these broken promises."

Comment #9 by Gary Arnold on 2014 01 12

Cut spending now before the Mass casinos come in and the Twin River revenue flow slows to a trickle.

Social service spending accounts for about 40% (I believe) of the budget. I'd cut waste and fraud (excessive staff overtime, Medicare fraud, etc.) there. And I'd ask every department in state government to cut their budgets by 5% (or whatever % gets us back on firm footing).

Then implement the plan announced by Brian Newberry for economic growth: http://www.golocalprov.com/politics/ri-state-report-gop-unveils-new-program-term-limits-lobbyists/

If we do nothing, a Detroit-like future is not out of the realm of possibility.

Comment #10 by Art West on 2014 01 12

... and please halt that truly perverse and expensive propaganda advertising campaign about RI's new Obamacare health insurance exchange. (The "patriotic" theme would make the freedom-loving revolutionaries who founded this country roll in their graves.)

Comment #11 by Art West on 2014 01 12


Comment #12 by LENNY BRUCE on 2014 01 13

this is the financial hole the state is in. it can be measured in dollars.

the real deficit is leadership. tough to measure but you are living the results.

Comment #13 by john paycheck on 2014 01 13

vote out all the bums that keep our lives so miserable

Comment #14 by LENNY BRUCE on 2014 01 13

vote out all the bums that keep our lives so miserable.

Comment #15 by LENNY BRUCE on 2014 01 13

Two observations:
best to move fully toward a defined contribution plan for state retirees (which I had as an employee of the Board of Governors for Higher Ed) as it is much less subject to politics - both the unsustainable promise/broken promise situation we are now in, and how the defined benefit system was scammed by some insiders "buying years" or getting big raises in their last few years to boost pensions.

Second, despite the extreme partisans, our debt situation is thoroughly bipartisan, we had Republican Governors for 16 straight years developing capital programs and Carcieri even came up with new ways to borrow without going to the public by issuing "Garvee bonds" for transportation, that is, borrowing from future Federal highway allotments, so he got to spend money that would have been coming to future adminsitrations. At least Chafee is putting RIDOT more on a pay as you go footing for which he deserves credit.

Comment #16 by barry schiller on 2014 01 13

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