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Blue Model Blues
Nationwide Pension Debt Surges

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.

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  • FriendlyGoat

    Well, the soon-coming federal tax cuts which will disproportionately benefit the wealthiest people who are somewhat concentrated in coastal blue states should provide lots of cash to shore up these state programs in blue states, right?

    • seattleoutcast

      I make middlin’ middle class wages. We’ll see, but I’m pretty sure mine will go down. I don’t get angry if people who make more than me pay fewer taxes.

      • FriendlyGoat

        1) I was being a little sarcastic with above, but, then again, not really. It is an irony that red-state people voted to cause the effect of huge tax cuts to the financial titans of New York and the tech titans of California. Blue state people who did not vote for this may end up with more enrichment from tax cuts than those in the heartland. That should be hard for Republicans to explain in the small towns of rural states, but, apparently they are able to skirt such questions and get away with it.

        2) I hope your wages don’t go down, but it has been my opinion for 35 years that the more we cut owners’ taxes on income, the more we put pressure on the wages and benefits of employees. We know now that workers’ fortunes have not really grown at all in decades and that the upper crust has seen almost all the gains in income and net worth. That should have been the obvious clue that tax cutting at the high end is stupid, but guns, abortion, anti-Hillary and the rest of the circus act just opened that door again. The damage to real people from this is going to be large.

        • Dale Fayda

          Then perhaps YOU can mitigate some of that damage and voluntarily pay more in taxes. Acceptable?

          • FriendlyGoat

            A better debate for you would be asking seattleoutcast why he is pretty sure his wages will go down.

          • TDS

            He’s pretty sure his taxes will go down, not wages.

          • FriendlyGoat

            You may be right about the intent, but that’s not what he said.

          • Tom

            Actually, that is what he said. It’s a bit unclear by itself, but if you put it in context of a reply to your post it makes a lot more sense.

          • FriendlyGoat

            I just go with the grammar the way we get it.

  • Disappeared4x

    Unfunded pension cash flow projections more useful than total unfunded pension liabilities in predicting how big problem.

  • Andrew Allison

    What Congress should do is (this is a recording) apply ERISA to public pensions. Only when the true extent of the malfeasance is made apparent will there be action.

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