New Jersey became the state with the worst financial condition due to a dramatic rise in its unfunded pension liabilities. A new accounting standard requires public pension plans to estimate if and when they will run out of assets, and to use a "blended" (currently lower) discount rate for valuing liabilities if they do expect to run out of assets. A lower discount rate can lead to sharply higher present values for liabilities.
Unlike most sinkhole states, NJ actuaries do estimate their major pension plans will run out of assets. As a result, the state's unfunded pension liabilities increased significantly.