"Most governments haven't been funding it, but Alaska has been," he said. He said part of the savings stemmed from rollbacks in benefits, though the bulk came from changed assumptions on trust investments.
Idaho cut benefit costs by pushing more retirees into Medicare, the federal health insurance plan for those 65 and older, according to David Hitchcock, an S&P analyst in New York.
"The low-hanging fruit is to just push people on Medicare," Hitchcock said. "States are coming to the realization that that is the easy way to cut OPEB costs," he said, referring to other post-employment benefits, such as health care.
Unprepared States
At least 20 governors and legislatures have failed to prepare ways to meet their projected expenses, said Sujit CanagaRetna, a senior analyst in Atlanta with the Council of State Governments.
The inaction paired with climbing health-care costs may create fiscal crises in states as the number of retirees rises, said Girard Miller, a senior strategist at Philadelphia-based PFM Group, which advises municipalities on financial matters. The liability "is like a sleeping cancer," he said.
The gap may become starker as the U.S. population grays. The number of Americans eligible for Medicare is projected to rise 70 percent to 78 million in the 20 years to 2030, the Henry J. Kaiser Family Foundation said in a 2008 study.
Municipal and state governments have expanded their payrolls in the meantime, with cities, towns, counties and school districts employing 14.1 million in January, up 3.5 percent from January 2002, according to U.S. Labor Department data. State employment has grown 1 percent to 5.05 million in the same period.
Rocky Recovery
States still reeling from the recession "face a long and uncertain recovery," according to analysts at the Center on Budget and Policy Priorities in Washington. In a Feb. 27 update, the nonprofit organization's analysts said states had projected or closed $47 billion in deficits for the fiscal year that begins in July. Tight budgets make it harder to deal with future health-care costs.
Pennsylvania's growing pension and benefit liabilities pose a risk that "will materially challenge" the state's attempts to balance its budget, Moody's Investors Service said in a December report. Pennsylvania ranked 24th in the Bloomberg Rankings analysis of unfunded liabilities for retiree benefits.