You have had the privilege of paying for other people’s mortgages (and will continue to do so for many, many years); their cars, their home appliances, their health care and now you may have the joy of paying the pensions of state workers…not even the ones in your state. A new study, Are State Public Pensions Sustainable? Why the Federal Government Should Worry About State Pension Liabilities, says that to bail out several states the federal government may have to issue new bonds at a cost of $75 billion. According to the study several states are in trouble now, six by 2020 and as many as thirty one by 2030, all this resulting from poor investing, bad actuarial assumptions, and mostly from overly generous benefits for state workers.
Your state taxes are paying for these pensions (along with employee contributions in most cases), but the promises are too great and the funding too little to meet the obligations. It appears we may be headed for another bailout of irresponsible people, this time public employee unions and the state politicians who negotiate with them. There should be no surprises in this one though as you have already bailed out GM in large part because of a similar scenario.
The pensions are not all you have to worry about, the various states have also promised incredibly generous retiree health benefits as well and they are largely unfunded but with as much as trillion dollars in liability (nobody really knows the right number but in New Jersey alone, the number is about $50 billion).
The Wall Street Journal reports on the study which says in part:
Other state pension funds expected to dry up by 2020: Louisiana, New Jersey, Connecticut, Indiana, Oklahoma and Hawaii. By 2030, 31 states could be in similar trouble, Rauh said in a report released Wednesday. He says the ultimate cost of a federal rescue could top $1 trillion. “This scenario could happen sooner if taxpayers flee to other states with lower taxes and higher services, if contributions are deferred or not made, or if returns are lower than expected,” said Rauh, an associate professor of finance at Northwestern’s Kellogg School of Management.
His prescription: Allow states to issue tax-subsidized pension funding bonds — similar to the Build America Bonds program — for the next 15 years if they agree to major reforms. States would need to close defined-benefit pension plans and offer new hires a defined-contribution plan as well as guaranteed access to Social Security (which only a quarter of all public workers contribute to now). The net cost to the federal government, he estimates, would be about $75 billion
Doesn’t all this make you mad, aren’t you disturbed that state workers have benefits far more generous than you do and that you and your fellow taxpayers who are struggling with your own retirement and health care costs are paying for the irresponsible behavior of public unions and state politicians? Given this is nothing new and people have been warned for years of the problem, I guess it doesn’t matter much.