October 11, 2008

UNDERFUNDED PUBLIC PENSIONS IN CONNECTICUT:

Nappier didn’t quite say it, but taxpayers should be more than worried; they should be freaking out. For even before the market crash the state pension fund did not have enough investment to meet its commitments, pension underfunding being a chronic scandal in Connecticut, most other states, and the federal government. And should the pension fund not cover those commitments, they would have to be met from the state’s general fund, which would mean more taxes. . . .While Governor Rell is scared too and has reduced state spending by executive order where she is authorized to do so, leaders of the Democratic majority in the General Assembly affect not to be scared at all. They say they hope that the economy will recover soon, and they want to use state government’s billion-dollar emergency fund, the “rainy-day fund,” to cover the deficit. Such a position allows the Democrats to avoid any discussion of economizing in government until after the election next month.

But the emergency fund is deceiving, since it has been amassed largely by shorting the pension fund.

Government accounting makes Enron accounting look wholesome. And this problem is huge, and under-appreciated. More on the problem in general here. And a report from California:

One thing’s for certain —- if you live in a Southern California city, your city workers’ pensions are seriously underfunded. All our cities are in that position. In addition, your county workers’ pensions are underfunded. Plus your state workers’ pensions. And that systematic underfunding was true before the market meltdown.

How did this happen? From a politician’s standpoint, it’s the perfect labor union concession —- instant, retroactive, underfunded defined benefit plan increases, where the true cost doesn’t become apparent until years later (usually after the guilty politicians have retired).

Moreover, the politicians, city managers —– everyone in the government —- benefits from these luxurious pensions. There’s no taxpayer voice in the process.

Plus, “compliant actuaries.”

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