State Pension Bailout Threat

The state pension underfunding crisis has grown so severe that it has prompted most U.S. states to cut benefits, according to calculations by The Wall Street Journal and Boston College’s Center for Retirement Research. However, cuts to date have only put a $100 billion dent in a nationwide funding gap of $900 billion. Clearly, states need to do more to lower their pension liabilities.

Government employee unions are bound to oppose further proposals to curb benefits or increase employee contributions toward their pensions. For lawmakers in some states, this will make reform a harder sell. In the case of Illinois, Governor Pat Quinn (D) seems willing to give in to union demands from the get-go. In his 2012 budget proposal, he raised the idea of a federal guarantee for the state’s pension debt.

What will this mean for the rest of the nation? To answer that question, the Illinois Policy Institute (IPI) recently launched No Pension Bailout, which maps out which states would gain and which would lose under a federal bailout. The bottom line: A federal bailout of state would punish fiscally prudent states and reward profligate ones. (Subscription needed for Wall Street Journal links.)

For more on public pensions, see here.