New Jersey has to pay an extra 1 percent interest every time it borrows money because its finances are so bad, notes Tom Kozlik, muni bond analyst, in a report to clients at PNC.
Only Illinois is worse: it has to pay a whopping 2.25% extra to borrow money. Pennsylvania is third-worst, at 0.7% extra, compared to AAA-rated states like Delaware.
Pennsylvania and New Jersey are also among 11 states whose ratings Moody's is threatening to cut again, according to PNC's report, which joins data from credit agencies and research groups.
New Jersey and Illinois have the worst-funded pensions in the U.S., with just 41 and 42 cents invested and expected to accrue to their respective public-pension funds, for every $1 they expect to have to pay.
The same two states also have the biggest combined pension, public worker medical benefits, and debt-service burden: they are the only states where those three expenses add up to more than one-third of the yearly revenues. Not counting salaries.
Pennsylvania has the third-worst-funded pensions, with just 60 cents on the dollar. Pension, benefit and debt charges for Pennsylvania are higher than the U.S. average but still within the big-state mid-range, about the same as Califronai and Texas.
Pennsylvania has the second-worst state budget deficit, with a shortfall of $2.3 billion over two budget years. Only New York is worse, down $4.5 billion for three years. At least New York's pensions are fully funded. Oregon and Virginia also have big budget gaps.
By some measures, Delaware is near the top of the scale: It's one of 13 states with a triple-A credit rating, the pension is more than 90% funded, and it can sell its bonds cheap.
Indeed, "Delaware was very pleased with pricing" on its $225 million public school and library bond sale this week, Stephanie Scola, Director of Bond Finance for the Diamond State, told me.
Delaware's bonds sold a few points below what other AAA-rated bonds sold for, with "true interest cost" at just 2.8% (unlike U.S. Treasuries, state bonds are typically callable by the issuer, so their interest rates are structured a little higher than Treasury's low-2% ranges.)
New Jersey would have had to pay at least 3.8 percent -- an extra $10 million a year on a Jersey-size $1 billion bond issue -- to sell similar bonds. Pennsylvania would have to pay 3.5%, an extra $7 million a year per $1 billion.
Not all is rosy in Delaware. The state's pension-benefit-debt service payments add up to around 20% of the budget, among the eight highest rates for the states.
Dover is looking at a $350 million budget deficit, a lot for a state its small size. But the state pension is more than 90% funded, vs. the national average of 75%, and the much lower funding rates in Pa. and N.J.