Public pensions' reckoning

WASHINGTON -- The nation's menu of crises caused by governmental malpractice may soon include states coming to Congress as mendicants, seeking relief from the consequences of their choices. Congress should forestall this by passing a bill with a bland title but explosive potential.

Principal author of the Public Employee Pension Transparency Act is Rep. Devin Nunes, a Republican from California, where about 80 cents of every government dollar goes for government employees' pay and benefits. His bill would define the scale of the problem of underfunded state and local government pensions, and would notify states not to approach Congress like Oliver Twists, holding out porridge bowls and asking for more.

Corporate pension funds are heavily regulated, including pre-funding requirements. A federal agency, the Pension Benefit Guaranty Corp., copes with insolvent ones. By requiring transparency, the government gave the private sector an incentive to move to defined contributions from defined benefit plans, which are now primarily luxuries enjoyed by public employees.

Nunes' bill would require state and municipal governments to disclose the size of their pension liabilities - and the often dreamy assumptions behind the calculations. Noncompliant governments would be ineligible for issuing bonds exempt from federal taxation. Furthermore, the bill would stipulate that state and local governments are entirely responsible for their pension obligations and the federal government will provide no bailouts.

Nunes' bill would not traduce any state's sovereignty: Each would retain the right not to comply, choosing to forfeit access to the federally subsidized borrowing that facilitated their slide into trouble.

Those troubles are big. A study by Northwestern University's Kellogg School of Management calculates the combined underfunding of pensions in all municipalities at $574 billion. States have an estimated $3.3 trillion in unfunded pension liabilities.

Nunes says 10 states will exhaust their pension money by 2020, and all but eight states will by 2030.

Read the rest here.

H/T T-19