Understanding Public Pension Debt: A State-by-State Comparison

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A new report is out from the Competitive Enterprise Institute, authored by Robert Sarvis.

From the abstract:

State government pension debt burdens labor markets and worsens the business climate. To get a clear picture of the extent of this effect around the nation, this paper amalgamates several estimates of states’ pension debts and ranks them from best to worst.

Today, many states face budget crunches due to massive pension debts that have accumulated over the past two decades, often in the billions of dollars. There are several reasons for this.

One reason is legal. In many states, pension payments have stronger legal protections than other kinds of debt. This has made reform  extremely difficult, as government employee unions can sue to block any scaling back of generous pension packages.

Then there is the politics. For years, government employee unions have effectively opposed efforts to control the costs of generous pension benefits. Meanwhile, politicians who rely on government unions for electoral support have been reluctant to pursue reform, as they find it much easier to pass the bill to future generations than to anger their union allies.

Another contributing factor has been math—or rather, bad math. For years, state governments have understated the underfunding of their pensions through the use of dubious accounting methods. This involves using a discount rate—the interest rate used to determine the present value of future cash flows—that is too high. This affects the valuation of liabilities and the level of governments’ contributions into their pension funds.

Read the full report here:

http://cei.org/sites/default/file/Robert%20Sarvis%20-%20Understanding%20Public%20Pension%20Debt.pdf

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