October 11, 2017
Politicians often like to kick the can down the road when it comes to debt. Few things illustrate that better than the large pension deficits many state and local governments around the country are now facing. That’s not surprising, given the temptation to pass the bill on to future office holders.
Yet, the pain isn’t all in the future. As a new study from Stanford University’s Institute for Economic Policy Research shows, increasing pension payments are straining California cities’ finances in the here and now. Steven Greenhut of the California Policy Center describes the extent of the problem:
[T]here’s a huge, current problem even for the bulk of...
September 14, 2017
Yesterday, Missouri State Treasurer Eric Schmitt announced that the state’s public employee pension plan was underfunded by $5 billion. That is an eye-popping amount, but the story is a sadly familiar one:
The treasurer placed blame on the retirement issue on past administrations for what he said were unreasonably high expectations of investment earnings. Schmitt said returns have been below predictions for 16 of the past 17 years.
According to data from the Missouri State Employees’ Retirement System, investment returns have averaged close to 7 percent over the past 20 years. Returns have been lower in recent years, averaging close to 4.5 percent over the past 10 years and less than one percent over...
December 12, 2016
This week on RealClear Radio Hour, Marc Edwards and Dan Liljenquist recount politically induced disasters from the perversion of science to the pension crisis.
My first guest is Marc Edwards, Professor of Environmental and Water Resources Engineering at Virginia Tech. Marc discusses institutional scientific misconduct in academic and government-funded science and details how the U.S. Environmental Protection Agency and Centers for Disease Control and Prevention created and covered up both the D.C. and Flint, Michigan, lead and drinking water crises. He describes how upper management cultivates a culture of corruption to promote their policy agency agenda, risking loss of public trust in science.
October 19, 2016
State public pension plans are underfunded by nearly $5.6 trillion nationwide, according to a new American Legislative Exchange Council (ALEC) study. Naturally, the level of pension funding and the size of liabilities vary widely across states. Given that, the new ALEC report provides useful comparisons based on three criteria:
- Funded ratio;
- Total unfunded liabilities; and
- Per capital unfunded liabilities.
In terms of funding ration, Wisconsin scores the best, at 63.4 percent funding, the only state with a ratio above 50 percent. Connecticut scores worst, at 22.8 percent.
Vermont has the nation’s smallest total pension obligation sum, at $8.7 billion; California the greatest, at $956 billion.
Of course, Vermont is a small...
May 16, 2016
Air traffic control is in dire need of reform and modernization, and there is a great plan in the House FAA bill to do just that. But a handful of conservative activists have launched a campaign to roil reform. Last week, I published two posts debunking false claims made by critics. While the vast majority of free market advocates familiar with the issue support the air traffic control corporatization plan contained in the House’s AIRR Act, a small group of anti-union conservative advocates opposes these reforms, citing concerns over labor unions.
The reform plan would transfer the...
April 12, 2016
For years, the Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures private sector defined benefit (DB) pension plans, has been severely underfunded below what it needs to cover its payout obligations to retirees, especially for multiemployer pensions. Closing this funding gap is urgent. Yet despite greater attention to the problem by lawmakers, the media, and the public, the problem persists.
A major reason for that is the perverse incentives built into the very workings of the PBGC. And it’s even worse for its multiemployer pension program.
First, PBGC premiums are set by Congress—a sure way to politicize the process and end up with premiums that don’t reflect actual funding risks.
Second is the “last man standing” rule, under which...
April 6, 2016
When you’re in a hole, stop digging.
That seems like such a simple concept that it shouldn’t need stating, but in the area of public pension reform, it’s often proven difficult to implement.
For states facing huge pension shortfalls, it means to stop adding to the total of pension liabilities. When it has been implemented, as in Utah, it has worked.
Better yet, it can be implemented in states whose constitutions prevent lawmakers from making any changes to pension obligations—as in Illinois, where a judge struck down a Chicago reform law on precisely those grounds.
March 28, 2016
On March 24, the Illinois Supreme Court struck down a Chicago pension reform bill that sought to address the city’s considerable pension shortfall. In addition to posing a setback for Chicago Mayor Rahm Emanuel’s efforts to fix the city’s finances, the ruling highlights a problem some states face in attempting to bring their pension liabilities under control.
As the late, great Yogi Berra would put it, last week’s ruling was déjà vu all over again. Last week’s ruling echoes a May 2015 case, in which the court ruled unanimously that SB1, a modest state pension reform law enacted during the administration of Governor Pat Quinn ran afoul of...
December 3, 2014
“I’ll gladly pay you Tuesday for a hamburger today” was the trademark utterance of J. Wellington Wimpy, the mooching character from the old Popeye cartoons. These days, he might find work to pay for his burgers managing a public pension fund—while playing bingo after hours.
In recent years, state and local governments’ pension shortfalls have gained greater public attention, due in part to the 2008 financial crisis, which left many in even worse shape. But the financial crisis isn’t alone to blame.
For years, public pension managers have been contributing less than the actuarially recommended contribution, essentially eating the proverbial burger today while leaving a future patron to pay the bill. Then, as the burger bill grows larger and our friend Wimpy gets more worried about ever paying it back, he turns to playing bingo, making ever larger wagers in the hope of...
October 7, 2014
“Heads I win; tails you lose.” That essentially sums up the relationship the California Public Employee Retirement System (CalPERS) has long enjoyed vis-à-vis the Golden State’s elected officials. Now it is finally facing a serious challenge.
Last week, a federal bankruptcy judge ruled that cities must treat bondholders and pensions in like fashion. Judge Christopher Klein of the Eastern District of California said he would decide by the end of October how to apply the ruling to the bankruptcy of the City of Stockton, but it seems unlikely that pensions will escape cuts altogether, while bondholders are forced to take haircuts.
As The New York Times reported on the case:...