COMMENTARY: Latest municipal, state pension data show crash continues


Thursday, March 29th, 2012

By Frank Keegan | State Budget Solutions

WASHINGTON, D.C. — Even as actuaries argued at their annual meeting here about the exact speed of our public pension crash, how to slow it with the least economic damage and who is going to take the hit, U.S. Census finished compiling numbers on the top 100 municipal and state plans. Those numbers add up to catastrophe.

Enrolled Actuaries wrapped up here Wednesday after three days of presentations, discussion and debate kicked off by an opening session titled “Pension Funding to Avoid Ruin.”

That was appropriate because Thursday morning Census released 2011 results for public pensions representing 89.4 percent of the national total. A quick look shows those funds fell another $1.4 trillion short of politicians’ promises.

Worse, in 2011 the trend from the 2008 financial crash turned downward again toward a certain collision with reality that will cost the United States at least $39 trillion — that’s TRILLION with a T — over the next three decades even if there never is another market crash and pension fund investments grow at rates never seen in history.

If any investments fall even a little short, this hidden extra tax must grow to more than $100 trillion, putting working Americans in debt to public employees forever.

No wonder the actuaries were nervous. They know the numbers, and they know the odds better than anybody.

Actuaries are true geniuses who calculate the incomprehensible for pension funds, insurance companies and anybody else who merely wants to foretell the future.

The only problem is, the future ain’t what it used to be.

For many municipal and state pension funds, the future catastrophe is here now. For all others, it is only a matter of time.

One thing is certain: Somebody has to make up the difference. Because public pensions are guaranteed, that means bondholders, taxpayers and current employees have to take the hit.

Right now taxpayers are No. 1 on the hit list. How big a hit?

Take a look at the latest numbers:

  • “Cash and Security Holdings” ended the year almost $80 billion below 2006 and $1.4 trillion less than politicians promised when they were handing out benefits and shorting contributions.
  • During that time “Earnings on Investments” that are supposed to pay benefits and fund growth in perpetuity, fell $16 billion short of paying promised benefits.
  • In six years, annual benefits paid out increased 42.5 percent, while income to pay those benefits declined 72.3 percent.
  • In 2011, benefits and expenses ate almost $20 billion more than total income from earnings and contributions.
  • On average from 2006 through 2011, total payments were $31 billion a year more than earnings.
  • Funds lost money in seven of those 24 quarters, were at zero or less than 1 percent gain in another three and not once hit the general 8 percent mark they set for themselves. Only in one quarter did they come close, 7.9 percent in the third quarter of 2009.
  • Anyone who thinks 2011 was just a transient bad bounce in a slow recovery from the Great Recession should consider the fact that according to calculations from a more comprehensive prior Census survey of 2,550 state and municipal pension plans through June 30, 2008 — prior to the market crash — funds already had lost $179 billion.

Politicians promised everybody then that investment gurus running pension funds would make it up and everything would be OK. How has that worked out?

Even accepting official numbers, this municipal and state pension crisis is headed for a fiscal event horizon of eternal debt. Liabilities continue to grow beyond any capacity to pay through investment returns, increased taxes and government service cuts.

None of the reforms imposed now will have any significant impact on what we owe.

Actuaries meeting here this week had good reason to be nervous. They have calculated the future and found certain catastrophe.

Now is the time for politicians, bondholders, public workers and taxpayers to listen to the actuaries, look at the inexorable numbers and start deciding how to share the pain.

Every year of delay only makes it worse.

Frank Keegan is editor of a project of The State Budget Solutions Project is non-partisan, positive, pro-reform, proactive and anchored in fundamental-systemic solutions. The goal is to successfully engage political journalists/bloggers, state officials and opinion leaders in a new way of thinking about state government and budgets, fundamental reforms, transparency and accountability.

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