After years of crises involving underfunded public pensions in states and municipalities across the country, the Treasury has decided to take a look, Reuters reports:
The Treasury Department’s new office on state and local finance will scrutinize public pensions, appointing a specialist in the area and becoming a resource for retirement planning, its inaugural director said in a speech on Monday. […]Saying that state and local pensions now have enough money to cover only 72 percent of their costs, in comparison to nearly 100 percent in 2000, Hiteshew added that very few pensions are well-funded. […]Hiteshew’s office will study the state of public pensions and help retirement systems evaluate their financial conditions, and it will look into the growing costs of retiree healthcare.
On the one hand, it’s a good thing that even a liberal Democratic administration is starting to wake up and smell the coffee. The unions and their closest allies are constantly saying that there is no pension problem, everything is fine, and all we need is more of the same. The appointment of a policy adviser on pensions is a positive step, and we’re glad to see that the President understands the need to protect the pensions of current and future public workers without breaking the backs of taxpayers.But there’s also a troubling juxtaposition in this new office that the Reuters piece hints at. This Treasury office will scrutinize not just pensions but will also push an infrastructure bond program:
Also on the office’s agenda are President Barack Obama’s push for more infrastructure financing, including creating a program akin to Build America Bonds, and continued monitoring of the financial situation in Detroit and Puerto Rico.
We find it more than a little curious that the same office that would be studying public pensions’ funding situations would also be in the business of promoting infrastructure financing. There would be a huge moral hazard in letting politicians dip into pension savings to fund their pet projects. In a worst case scenario (namely, if the federal government started working like the city of Chicago and other scratch-my-back municipalities around the country) pension funds would get a pass from federal regulators for substandard funding if they invested in politician-approved bonds. Projects too redolent of pork and therefore unlikely to attract investors in the private market could enjoy captive pools of money from the pension funds set aside for hapless state and local workers.Playing fast and loose with worker pension money and using public funds to subsidize pork barrel projects are among the most prominent bad habits of American politicians today. Federal oversight of state and local pensions may well be necessary due to serial mismanagement, but that oversight should come with tight regulations. The administration should make sure that even the possibility of a special back door for politically favored projects doesn’t, and can’t, exist.