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Pension Blues
It’s Not Just Puerto Rico

Puerto Rico’s rolling bankruptcy crisis is just a taste of the fiscal storm that lies ahead if American state and local governments can’t find a way to bring their own gaping pension shortfalls under control. For decades, rapacious public sector unions and craven politicians on the mainland have also been also been propping unsustainable state employee retirement systems, and—crucially—using accounting tricks to dupe the public and conceal the magnitude of their unfunded obligations. Congress’s proposed relief package for Puerto Rico would require the island to be more forthright about its pension costs going forward, but it would allow state and local governments to continue downplaying the size of their debts.

As Andrew C. Biggs writes in RealClearPolicy, this is a serious mistake:

“You never want a serious crisis to go to waste,” said then-White House Chief of Staff Rahm Emanuel, who is now the mayor of Chicago, in 2008. Puerto Rico’s current financial situation is just such a crisis, but congressional Republicans’ legislation on the issue may put parochial political concerns above the national interest. The current draft would fail to ensure that all state and local governments — not just Puerto Rico’s — accurately disclose the unfunded pension debts they have accumulated.

… Last year, nearly 60 percent of state and local governments failed to make their full pension contributions. With trillions of dollars in public-pension liabilities residing off the ledger books, and increasingly risky investments used to fund those liabilities, failing to address public-pension disclosure would be a huge lost opportunity.

Read the whole thing. The resistance to honest accounting is apparently coming not from Congressional Democrats, but from Republican state legislators eager to keep their pension Ponzi schemes in place—a reminder that corrupt blue model practices are thoroughly bipartisan. Hopefully Congressional Republicans will have the good sense to reverse course and require state and local governments to come clean as well. If not, they shouldn’t be surprised when they are asked to send billions not just to San Juan, but to Chicago, Trenton, and Frankfort as well.

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  • Gugliemus

    It wouldn’t take much in the way of political leadership for our Congress to simply to put down a marker for states and localities with respect to future “bailouts” of their bloated and unsustainable pension schemes: if you haven’t moved to a defined contribution system, expect nothing in the way of relief from the Federal government. Period. Why is this so hard?

    • Andrew Allison

      It’s hard because our so-called “political leadership” belongs in a whorehouse.

  • Andrew Allison

    It’s hardly surprising that state legislators (of either party) are opposed to disclosing the extent of their pension malfeasance. Achieving this would require congress to act in the interests of taxpayers — don’t hold your breath. The PR deal is designed to do the exact opposite, by establishing a precedent for the States (which will be the entities asking for federal bailouts).

  • Gerald

    All financial entities, including cities, counties, states and federal government should have to comply with the same accounting rules and regulations as businesses are required to do. This would not make the problem go away quickly, but would require accurate statements be provided to the public as well as government employees on a timely basis. It would also provide penalties, up to and including prison terms for false statements.

    There should be no “bailout” for Puerto Rico or any other government entity which has clearly been irresponsible in managing finances.

    • Andrew Allison

      There’s a very good argument to be made that the people who elected the perps should pay the price. But in all fairness, it wasn’t the people of PR who decided to make its bonds triple tax-exempt, apply minimum wage, etc. (http://www.bloombergview.com/articles/2015-10-29/puerto-rico-s-debt-crisis-is-kind-of-congress-s-fault). Not, I hasten to add, that I’m in favor of a bailout except under stringent terms (and if the Puerto Ricans think this smacks of colonialism, they can always decline, and pay the price).

  • Daniel Nylen

    As soon as the pensions and the retirees lose the rights to the taxpayers of the future and have only rights to those funds actually put into the pension plans, the problem solves itself. I never really understood how one legislature could make laws that apply to future legislatures and still don’t. If the unions and employees knew their future pensions were limited to what was put into the funds each year they would care about how much and what was done with them. This unrealistic scenario is unlikely to happen until years in the future when the citizens of the future say stop taxme for past workers and then elect politicians who will. What % of the current revenues have to go to retirees before this happens?

    • http://whenfallsthecoliseum.com/author/kwatson/ megapotamus

      In the case of Illinois, the pensions are in the Constitution. So that’s how.

    • fedupMan

      Pols are in bed with public unions and scratch each others back. Pols give em juicy contracts and retirements and the unions go all out on on election day to keep DA pols in power. For 40 years this mentality in IL has now doomed the financial state of IL . 17 IL debt downgrades and just a hair from funk status from all 3 bond rating firms.

    • Andrew Allison

      The IL legislature has the power, but not the balls, to change the state constitution, i.e. excise the clause which prohibits reductions in promised pension benefits.

  • CrassyKnoll

    “[T]he resistance to honest accounting is apparently coming not from Congressional Democrats, but from Republican state legislators eager to keep their pension Ponzi schemes in place…”

    I find this entirely plausible, but sure would appreciate some statistics – at least name some states, with legislatures controlled by R’s, that also have significant underfunded liabilities.

  • http://whenfallsthecoliseum.com/author/kwatson/ megapotamus

    60% of munis shorted their contributions? Well, 100% missed their return targets. Any govt pension fund you could name uses 7-8% return projections. Why? Cuz they got 8% one or two years twenty years ago. I think it was Illinois’ pension gurus who made a joyful PR eruption last month…. We’re in the Top Ten of pension fund returns! And so they are. What was that return? 1.1% So it is much, much worser than anyone admits. Straight to hell with Puerto Rico. Straight to hell with all of them.

    • MumuBobby

      This is why there’s less risk in the stock market than perceived – the government is wholly invested in an ever rising stock market. If it doesn’t taxes get raised and benefits get cut…….and the politicians get voted out. Of course the market can go down, but the government will be forever putting wind in the sails of the market. By absolute necessity.

  • Robert Burke

    The secret solution to this bloody mess is to defund all tax dollars spent on the Global Progressive Agenda in K-12, university, law and journalism schools… and to replace the pedagogy with Western Enlightenment.

    This is the foundational fix to every state in the Union, and every nation in the world.

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