The latest report from a respected group of Stanford University researchers shows a double-digit increase in unfunded public sector pension liabilities in states and localities across the country. From the group’s press release:
Pension Tracker, a Stanford Institute for Economic Policy Research (SIEPR) project, estimates total United States public pension debt (a.k.a. unfunded liabilities) in June 2015 at $5.599 trillion, a 16 percent increase over 2014. The project is directed by Joe Nation, a former state lawmaker, SIEPR researcher, and Professor of the Practice of Public Policy at Stanford.
The study includes the most recent financial data from nearly 300 state pension systems, and it estimates financial data from local pension systems across all 50 states and the District of Columbia.
Pension funds routinely conceal the extent of their fiscal distress through accounting tricks, including overestimating the “present value” of their obligations and assuming unrealistically high rates of return. Stanford’s pension tracker tries to estimate the actual level of debt through publicly available data and more realistic fiscal assumptions. And the results should be alarming to lawmakers.
While pension mismanagement is a bipartisan problem, Pension Tracker’s state rankings make clear that it is particularly acute in blue states. Nine out of the ten states with the largest pension debts per capita, including California, Massachusetts, and Illinois, were blue in the 2016 election (the one exception is Alaska, which comes in first at $110,538 per person). This may have to do with the fact that blue states tend to be more deferential to public sector unions, which exert strong pressure on legislatures to expand the generosity of pension programs.
The looming fiscal disaster is worthy of attention from the new Republican government in Washington. Congress should consider passing a law requiring state and local governments to be more forthright about the extent of their pension obligations. It should also make contingency plans for if and when there is a wave of pension-induced municipal bankruptcies, which is possible if not likely in the event of another economic downturn.