Background:

The turmoil on Wall Street in the last few weeks—with the Dow careening 778 points downwards on a single day in September 2008, the largest point drop ever, when the U.S. House of Representatives rejected a financial bailout plan—continues to befuddle policymakers and citizens alike.  As we await the positive developments of the recently enacted Emergency Economic Stabilization Act of 2008, Americans across the country anxiously monitor their own perilous financial positions.  The current turbulence on Wall Street comes at a time when state finances were already under a great deal of pressure.  Even though state revenues had begun to recover from the recession that swept over the country at the beginning of this decade, several disturbing fiscal signs began to appear by late 2006 and early 2007.  The nation’s housing market, which had been a major contributor to the surge in economic activity in the aftermath of the 2001 recession, began to crumble as a result of a mortgage meltdown.

How have these developments from impacted state finances?  One of the ways involves the adverse impact of the ongoing Wall Street tumult on a state’s investment portfolio.  In the last 15 years or so, states have moved aggressively away from the more staid but secure U.S. Treasury bills to more exposure to non-governmental equities, such as stock in many of the financial firms that have either disintegrated or been negatively affected by recent trends.  Thus, it is a safe assumption that most states have some exposure and that their overall portfolios have eroded.

The October 2008 Question of the Month relates to an inquiry that sought to determine the asset mix of the nation’s state retirement plans.  Four of the top 10 plans in the nation are under SLC states, while at the other end of the spectrum, three of the bottom ten belong to SLC states.
Q:

What is the most recently released data on the asset mix of the nation's state retirement plans?
A:

State Retirement Statistics: Cash and Investment Holdings (Thousands of Dollars)

FY 2006

Key: SLC States
Top Ten Plans
Bottom Ten Plans


State
Funded Ratio Percent (1)
Total Portfolio
Percent of Cash & Deposits in Total Portfolio (2)
Percent of Governmental Securities in Total Portfolio (3)
Percent of Non-Governmental Securities in Total Portfolio (4)
Percent of Other Investments in Total Portfolio (5)
Oregon 110.5
$56,355,470
 5% 9% 71% 16%
North Carolina  106.1
$67,729,781
 0% 15% 81% 4%
Florida   105.6
$135,805,678
 5% 8% 81% 7%
Delaware  101.7
$6,135,813
 2% 1% 84% 13%
New York  100.9
$343,678,005
 3% 9% 81% 7%
Wisconsin  99.5
$79,755,515
 1% 5% 90% 4%
South Dakota  96.7
$7,300,075
 11% 8% 70% 11%
Utah  96.4
$18,657,043
 7% 15% 62% 16%
Georgia  96.1
$67,047,834
 2% 31% 68% 0%
Tennessee  95.3
$35,950,936
 5% 29% 61% 5%
Idaho  95.2
$9,618,449
 6% 0% 89% 5%
Wyoming 94.4
$6,232,338
 4% 18% 70% 8%
Vermont 90.8
$3,041,075
 11% 0% 79% 9%
Nebraska  88.7
$9,565,427
 3% 3% 91% 3%
Texas  88.7
$173,412,502
 4% 21% 71% 5%
Iowa  88.4
$23,449,948
 3% 5% 74% 18%
Alabama  88.1
$30,384,044
 4% 1% 89% 6%
California  87.4
$562,972,331
 2% 7% 78% 12%
Pennsylvania  84.9
$103,314,191
 6% 12% 68% 13%
Minnesota  84.3
$52,089,647
 1% 0% 71% 27%
Arizona  83.5
$32,500,260
 2% 4% 93% 2%
Maryland  83.3
$47,012,213
 4% 7% 83% 6%
Missouri  83.0
$57,538,316
 4% 12% 75% 8%
Ohio  82.5
$149,874,270
 2% 3% 84% 11%
Arkansas  81.3
$17,616,485
 3% 5% 83% 9%
Montana  81.1
$7,068,244
 4% 0% 65% 30%
North Dakota 81.0
$3,653,802
 3% 1% 81% 15%
Virginia 80.8
$58,427,770
 4% 6% 82% 9%
Michigan  80.7
$89,201,615
 4% 3% 86% 7%
New Mexico 80.4
$20,236,745
 4% 10% 83% 2%
New Jersey 77.4
$57,430,047
 0% 0% 96% 4%
Washington 76.6
$59,593,696
 3% 6% 71% 20%
Nevada  74.8
$21,656,244
 2% 0% 92% 6%
Colorado  74.1
$43,462,858
 2% 5% 78% 14%
Mississippi 73.5
$24,081,088
 4% 7% 86% 3%
Massachusetts 72.1
$58,032,061
 3% 2% 92% 4%
Kentucky   71.9
$29,896,744
 4% 8% 81% 6%
South Carolina  71.6
$30,247,191
 6% 2% 92% 0%
Maine  71.3
$9,528,945
 2% 3% 95% 0%
Kansas 69.4
$13,627,374
 6% 12% 71% 11%
Louisiana * 66.3
$33,165,473
 4% 4% 82% 11%
Hawaii  65.0
$12,681,533
 5% 0% 85% 10%
Indiana  64.3
$27,672,065
 2% 13% 83% 2%
New Hampshire  61.4
$5,296,311
 19% 0% 73% 7%
Alaska  61.0
$14,799,314
 3% 12% 67% 18%
Illinois  59.5
$126,956,280
 4% 6% 83% 7%
Oklahoma  59.5
$20,156,653
 3% 14% 81% 2%
Connecticut 56.4
$28,562,577
 2% 3% 86% 9%
Rhode Island  53.4
$9,632,652
 1% 12% 79% 8%
West Virginia  52.7
$3,894,750
 0% 2% 98% 0%
District of Columbia N/A
6,494,734
6% 14% 75% 5%
National Totals/Averages 81.0
$2,912,494,412
3% 8% 80% 9%
Notes:
(1) Funded ratio: the ratio of the actuarial value of assets over its actuarial accrued liability.
(2) Cash and deposits include cash and demand deposits along with time, savings deposits and non-federal short-term investments.
(3) Governmental securities include United States Treasury, federal agency and state and local government instruments.
(4) Non-governmental securities include corporate bonds, corporate stocks, mortgages, funds held in trust, foreign and international securities and other instruments.
(5) Total other investments include real property and miscellaneous investments.
* Louisiana State Senate staff provided additional information to the SLC indicating that the Funded Ratio Percent (based on a report by Standard & Poor’s) reflects data for the two largest (of the four) state-sponsored and -funded retirement systems in the state.  In addition, Louisiana staff indicated that the $33 billion total portfolio comprised $31 billion from nine consolidated statewide systems for local employees with the additional $2 billion comprising funds from 21 various local plans that do not participate in the consolidated systems.
Sources:
Funded Ratio Percent from Standard and Poor's, February 2008
Cash and Investment Holdings from U.S. Department of Commerce, December 2007