Remember from earlier posts, a higher discount rate makes future liabilities look smaller, so cities and states save less for their pensions. If they don't earn, e.g., at least 8%, then they wont have enough to pay the pensions when they finally come due. This is what happened to Detroit.
What makes Conneticut so interesting is that they are the richest state in the USA and have saved the least, behind only Illinois and Kentucky. Ordinarily, states which have big unfunded liabilities like this would have trouble borrowing money because investors would demand higher compensation (higher interest rates) for holding bonds with a higher risk of default. However, because Conneticut has high taxes, and many high-income residents, there is a big demand for state's tax-deductible bonds. This keeps the cost of borrowing low, and allows state politicians to ignore the pension problem:
“There’s almost limitless money to buy Connecticut bonds,” said Matt Fabian of research firm Municipal Market Analytics. Investors “are getting less of a risk premium than I think you deserve because of the high demand created by the wealth of the taxpayers in the state,” added Paul Mansour, head of municipal research at Hartford, Conn.-based Conning.