2 scary charts about state, local debt

Back in 1995, the U.S. General Accounting Office (now the Government Accountability Office) estimated state and local unfunded pension liabilities at $200 billion in fiscal year 1992 (nearly $300 billion in today’s dollars). The most recent estimate for unfunded liabilities today for these same entities comes from The States Project, a joint venture of Harvard and the University of Pennsylvania. Their report puts the number at $3.4 trillion, plus $1.2 trillion in health care promises to government workers in retirement which haven’t been funded. On top of this is the growth in state bonded debt.

state pension debt 1995.jpg

That debt has also soared in recent years, as the chart below shows. One result is that The State Project puts total state and local liabilities now at a whopping $7.3 trillion. It is startling how fast our states, cities, counties, towns and school districts have been accumulating debt.

municipal debt outstanding.jpg

Comments (27) Add yours ↓
  1. Keith Brainard

    The first chart shown here, State, local pension debt, in billions, is misleading and utterly disingenuous.

    The 1992 value is based on the use of the conventional method for measuring public pension liabilities. The 2011 value is based on a completely different method of measurement, based on current (historically low) interest rates.

    Moreover, the use of aggregate numbers to describe state and local unfunded pension liabilities glosses over the critical fact that pension obligations are owned by individual states and cities. Indiana is not responsible for Illinois’ pension promises. The state and local pension funding problem is state- and local-specific. Many states face no serious pension funding problems.

    This chart is an apples-to-oranges comparison that is intended to make a political point via distortion, not to enlighten readers or inform the public pension debate.

    PublicSectorInc’s credibility is diminished by allowing displays such as this.

    December 21, 2012 Reply
  2. Keith Brainard

    The first chart shown here, State, local pension debt, in billions, is misleading and utterly disingenuous.

    The 1992 value is based on the use of the conventional method for measuring public pension liabilities. The 2011 value is based on a completely different method of measurement, based on current (historically low) interest rates.

    Moreover, the use of aggregate numbers to describe state and local unfunded pension liabilities glosses over the critical fact that pension obligations are owned by individual states and cities. Indiana is not responsible for Illinois’ pension promises. The state and local pension funding problem is state- and local-specific. Many states face no serious pension funding problems.

    This chart is an apples-to-oranges comparison that is intended to make a political point via distortion, not to enlighten readers or inform the public pension debate.

    PublicSectorInc’s credibility is diminished by allowing displays such as this.

    December 21, 2012 Reply
  3. Tough Love

    Virtually ALL of these grossly excessive Public Sector Plans resulted from the collusion of the Public Sector Union and the politicians, a trading of campaign contributions and election support for favorable votes on pay, pensions and benefits. NOBODY at that “bargaining table” was appropriately looking out for Taxpayer interests.

    The Taxpayer paid-for share of Public Sector pensions are TYPICALLY 2-4 times (5-6 times for safety workers) greater in value at retirement than those of comparable Private Sector workers retiring with the SAME pay, the SAME years of service, and the SAME age at retirement. This enormous differential results not only from the much richer formula factor per year of service, but from much younger full retirement ages, the inclusion of COLA increases, the liberal definition of “pensionable compensation”, and the routine spiking of end-of-career salary to goose compensation and hence the pension.

    Taxpayers …. you’ve been financially raped by the greedy Public Sector Unions & workers for FAR too long. It’s time to shut this down NOW !

    REFUSE to fund that share (50-75%) of current Public Sector pension promises that are greater (as a % of pay) than what YOU get in retirement.

    December 28, 2012 Reply
  4. Tough Love

    Keith, As Research Director for the National Association of State Retirement Administrators, YOUR opinion is coming from a position of extraordinary bias …. and can hardly be taken seriously.

    The singular objection of Public Sector Retirement Plans is to stop and/or delay any and all material pension reform, no matter how excessive current Plans are …. and the Taxpayer be damned.

    December 28, 2012 Reply
  5. Tough Love

    Virtually ALL of these grossly excessive Public Sector Plans resulted from the collusion of the Public Sector Union and the politicians, a trading of campaign contributions and election support for favorable votes on pay, pensions and benefits. NOBODY at that “bargaining table” was appropriately looking out for Taxpayer interests.

    The Taxpayer paid-for share of Public Sector pensions are TYPICALLY 2-4 times (5-6 times for safety workers) greater in value at retirement than those of comparable Private Sector workers retiring with the SAME pay, the SAME years of service, and the SAME age at retirement. This enormous differential results not only from the much richer formula factor per year of service, but from much younger full retirement ages, the inclusion of COLA increases, the liberal definition of “pensionable compensation”, and the routine spiking of end-of-career salary to goose compensation and hence the pension.

    Taxpayers …. you’ve been financially raped by the greedy Public Sector Unions & workers for FAR too long. It’s time to shut this down NOW !

    REFUSE to fund that share (50-75%) of current Public Sector pension promises that are greater (as a % of pay) than what YOU get in retirement.

    December 28, 2012 Reply
  6. Tough Love

    Keith, As Research Director for the National Association of State Retirement Administrators, YOUR opinion is coming from a position of extraordinary bias …. and can hardly be taken seriously.

    The singular objection of Public Sector Retirement Plans is to stop and/or delay any and all material pension reform, no matter how excessive current Plans are …. and the Taxpayer be damned.

    December 28, 2012 Reply
  7. eatingdogfood

    Thieving Democrats + Corrupt Greedy Unions = BANKRUPTCY!

    December 28, 2012 Reply
  8. eatingdogfood

    Thieving Democrats + Corrupt Greedy Unions = BANKRUPTCY!

    December 28, 2012 Reply
  9. Charles

    I earned it. No one including you complained until private companies robbed you blind. California has the second lowest number of State employees in the nation. Retirement pay is 3% of the State budget. California pays salaries commensurate with our high clost of living.

    Quit yer bellyaching. NJ is far worse off.

    December 29, 2012 Reply
  10. Charles

    I earned it. No one including you complained until private companies robbed you blind. California has the second lowest number of State employees in the nation. Retirement pay is 3% of the State budget. California pays salaries commensurate with our high clost of living.

    Quit yer bellyaching. NJ is far worse off.

    December 29, 2012 Reply
  11. Nico

    Well put Tough Love.

    December 30, 2012 Reply
  12. Nico

    Well put Tough Love.

    December 30, 2012 Reply
  13. Keith Brainard

    Tough Love: Your approach appears to be that when the facts fail you, try ad hominems. How’s that working out for you?

    Public retirement systems around the country have promoted and facilitated pension reforms, and continue to do so. The assertion that public retirement systems are solely interested in preventing pension reform is demonstrably false and uninformed.

    January 2, 2013 Reply
  14. Tough Love

    Keith Brainard,

    On the contrary, identify one fact I have misstated and we can debate it.

    99% of pension “reforms” impact only NEW workers and will save nothing until they begin to retire 20-30 years hence. Ours States and Cities are in dire straights NOW …. primarily DUE TO the grossly excessive pension & benefit promises made to Public Sector workers by elected officials bought with Union campaign contributions and election support.

    Outright lies, disinformation, distraction from the ROOT CAUSE of the problem (these excessive pensions), and offering up only financially IMMATERIAL “reforms” is INDEED the mantra of all Public Sector Unions.

    January 2, 2013 Reply
  15. Keith Brainard

    Tough Love: Your approach appears to be that when the facts fail you, try ad hominems. How’s that working out for you?

    Public retirement systems around the country have promoted and facilitated pension reforms, and continue to do so. The assertion that public retirement systems are solely interested in preventing pension reform is demonstrably false and uninformed.

    January 2, 2013 Reply
  16. editor

    Steven Malanga

    Defenders of the status quo in the discussion about state and local pension liabilities often use the complexity of accounting in defined benefit plans to obscure and confuse the average reader. Keith Brainard’s initial post falls into that category.

    Brainard says that the pension debt chart is an apples-to-oranges comparison because the data from the 1995 GAO study uses a “conventional” method of measuring unfunded liabilities, while the 2011 value is a “completely different method of measurement.” Brainard doesn’t bother attempting to explain to the average reader what this might mean, but it’s worth considering.

    The first study, by the GAO, estimated unfunded pension liabilities for states by taking the data directly from pension fund reports, which entailed accepting the accounting of the funds, including their projections of annual average investment returns. Even so, the GAO survey found a troubling pattern in some states’ underfunding pensions, remarking that “underfunding of such plans may present governments with difficult budget decisions in the future,” and that “if pension benefits are not fully funded, the fiscal burden of providing for them can grow quickly as a share of the budget under various circumstances.” Prescient words, indeed.

    The second study, by The States Project, a joint venture of Harvard University’s Institute of Politics and the Fels Institute of Government at the University of Pennsylvania, represents a significant change in the way we view unfunded state and local liabilities. As the study says, “Pensions and health benefits for government workers are not properly valued or funded, resulting in huge unfunded liabilities for states.” As a result, the study utilizes estimates of pension debt made by others, not the states own pension accounting. Here is what the study concludes: “Our estimations of unfunded liabilities come from independent economists, who have made modifications to state and local actuarial estimates of liabilities. We believe these independent estimates best reflect the true economic condition of states’ unfunded liabilities.”

    The chief difference is that independent analysts no longer accept the long-term investment projections of pension funds but value unfunded liabilities by using more conservative, some would say realistic, projections. If the GAO was troubled in 1995 by underfunding of state pensions, the States Project is even more troubled by the current level of underfunding piled on top of other state debt. This is the message of the charts, expressed this way by the State’s Project:

    “These liabilities, coupled with large state debts that have accumulated from years of over borrowing paint a harrowing fiscal picture.”

    Brainard has the gall to raise the ‘credibility’ issue. He ignores the credibility and objectivity of the sources I cite and their dire warnings, trying instead to obscure their message with vague references to apples-to-oranges comparisons.

    Brainard represents an organization, the National Association of State Retirement Officers, whose members are heavily invested in the current pension system employed by many states. It is the projections and estimates of liabilities by the funds administered by these folks which are now being discarded as inaccurate and unhelpful by independent analysts like those references in the States Project. You have to wonder, given the judgment of so many independent researchers these days, who it is that actually has the credibility.

    January 2, 2013 Reply
  17. Tough Love

    Keith Brainard,

    On the contrary, identify one fact I have misstated and we can debate it.

    99% of pension “reforms” impact only NEW workers and will save nothing until they begin to retire 20-30 years hence. Ours States and Cities are in dire straights NOW …. primarily DUE TO the grossly excessive pension & benefit promises made to Public Sector workers by elected officials bought with Union campaign contributions and election support.

    Outright lies, disinformation, distraction from the ROOT CAUSE of the problem (these excessive pensions), and offering up only financially IMMATERIAL “reforms” is INDEED the mantra of all Public Sector Unions.

    January 2, 2013 Reply
  18. Tough Love

    Steven Malanga, I believe you will agree with the (UnionWatch) Editor, when, in response to a commentator named ERISANation who apparently was unhappy with my strong advocacy for MATERIAL pension reform (calling it “pension envy” and a growing menace”), responded as follows:

    ERISANation – it is not pension envy that is a “growing menace,” it is underfunded, unsustainable, inappropriately generous government worker pensions themselves that are the menace. They menace our economic health as a nation, they menace our ability to provide government services while keeping taxes manageable for ordinary private sector workers, they menace our ability to regulate the financial sector because they pour hundreds of billions of dollars each year into investment funds with NO moral hazard (since the taxpayers are supposedly on the hook to cover shortfalls), and they menace our unity as a society and our faith in government itself, because they guarantee government workers a retirement annuity that is several times greater than what private sector workers can expect. By personifying the pension debate and suggesting the problem is “pension envy” instead of the pensions themselves, you are emulating a classic – and very effective – tactic of public sector unions.

    January 2, 2013 Reply
  19. editor

    Steven Malanga

    Defenders of the status quo in the discussion about state and local pension liabilities often use the complexity of accounting in defined benefit plans to obscure and confuse the average reader. Keith Brainard’s initial post falls into that category.

    Brainard says that the pension debt chart is an apples-to-oranges comparison because the data from the 1995 GAO study uses a “conventional” method of measuring unfunded liabilities, while the 2011 value is a “completely different method of measurement.” Brainard doesn’t bother attempting to explain to the average reader what this might mean, but it’s worth considering.

    The first study, by the GAO, estimated unfunded pension liabilities for states by taking the data directly from pension fund reports, which entailed accepting the accounting of the funds, including their projections of annual average investment returns. Even so, the GAO survey found a troubling pattern in some states’ underfunding pensions, remarking that “underfunding of such plans may present governments with difficult budget decisions in the future,” and that “if pension benefits are not fully funded, the fiscal burden of providing for them can grow quickly as a share of the budget under various circumstances.” Prescient words, indeed.

    The second study, by The States Project, a joint venture of Harvard University’s Institute of Politics and the Fels Institute of Government at the University of Pennsylvania, represents a significant change in the way we view unfunded state and local liabilities. As the study says, “Pensions and health benefits for government workers are not properly valued or funded, resulting in huge unfunded liabilities for states.” As a result, the study utilizes estimates of pension debt made by others, not the states own pension accounting. Here is what the study concludes: “Our estimations of unfunded liabilities come from independent economists, who have made modifications to state and local actuarial estimates of liabilities. We believe these independent estimates best reflect the true economic condition of states’ unfunded liabilities.”

    The chief difference is that independent analysts no longer accept the long-term investment projections of pension funds but value unfunded liabilities by using more conservative, some would say realistic, projections. If the GAO was troubled in 1995 by underfunding of state pensions, the States Project is even more troubled by the current level of underfunding piled on top of other state debt. This is the message of the charts, expressed this way by the State’s Project:

    “These liabilities, coupled with large state debts that have accumulated from years of over borrowing paint a harrowing fiscal picture.”

    Brainard has the gall to raise the ‘credibility’ issue. He ignores the credibility and objectivity of the sources I cite and their dire warnings, trying instead to obscure their message with vague references to apples-to-oranges comparisons.

    Brainard represents an organization, the National Association of State Retirement Officers, whose members are heavily invested in the current pension system employed by many states. It is the projections and estimates of liabilities by the funds administered by these folks which are now being discarded as inaccurate and unhelpful by independent analysts like those references in the States Project. You have to wonder, given the judgment of so many independent researchers these days, who it is that actually has the credibility.

    January 2, 2013 Reply
  20. Tough Love

    Steven Malanga, I believe you will agree with the (UnionWatch) Editor, when, in response to a commentator named ERISANation who apparently was unhappy with my strong advocacy for MATERIAL pension reform (calling it “pension envy” and a growing menace”), responded as follows:

    ERISANation – it is not pension envy that is a “growing menace,” it is underfunded, unsustainable, inappropriately generous government worker pensions themselves that are the menace. They menace our economic health as a nation, they menace our ability to provide government services while keeping taxes manageable for ordinary private sector workers, they menace our ability to regulate the financial sector because they pour hundreds of billions of dollars each year into investment funds with NO moral hazard (since the taxpayers are supposedly on the hook to cover shortfalls), and they menace our unity as a society and our faith in government itself, because they guarantee government workers a retirement annuity that is several times greater than what private sector workers can expect. By personifying the pension debate and suggesting the problem is “pension envy” instead of the pensions themselves, you are emulating a classic – and very effective – tactic of public sector unions.

    January 2, 2013 Reply
  21. Keith Brainard

    Throughout his response, Mr. Malanga never refutes my central charge, that his chart is an apples-to-oranges comparison and is therefore misleading and disingenuous. Instead, he defends just one-half of this chart—the oranges half—that supports his point, while criticizing the first half.

    Mr. Malanga’s defense of one-half of the chart is based on the use of “independent economists” who have made their own calculations of public pension liabilities. Mr. Malanga presents these calculations as gospel, as if they are absolute truth. Readers should know that these calculations are not those used by public pension plans, nor are they endorsed by the entity—the Governmental Accounting Standards Board (GASB)—tasked with promulgating such calculations, nor are these necessarily reliable calculations for determining the cost or condition of public pension plans.

    Moreover, the calculations endorsed by Mr. Malanga are not used by the bond ratings agencies, the entities tasked with assessing the condition of the states and cities that sponsor public pension plans.

    The only group, then, that appears to support the calculations supported by Mr. Malanga, are economists. No group involved in the actual practice of administering, regulating, funding, or officially assessing the condition of public pension plans, actually supports the methodology advanced by Mr. Malanga.

    If Mr. Malanga would like to debate the propriety and merits of different methods of calculating pension liabilities, I’d be happy to participate. Readers should be warned, however, that that debate rages without consensus and there are legitimate positions on each side. Indeed, the GASB recently promulgated a new set of public pension standards that fully satisfied neither side of the debate and left both sides with results to applaud and denounce.

    Ironically, after charging that I don’t “bother attempting to explain to the average reader what [my calculations] might mean,” Mr. Malanga proceeds to never bother explaining what his set of calculations means! Instead, he defends the calculations that support his world view solely by citing the credibility of the economists who support such calculations.

    Mr. Malanga’s use of the 1996 GAO study of public pensions is further evidence of distortion and deception: the GAO study was focused not on the issue Mr. Malanga raises, which is the manner in which pension liabilities are calculated, but rather, on the failure by some states and cities to contribute the amount that pension actuaries recommend. To be sure, GAO’s concern about states and cities failing to adequately fund their pension obligations is legitimate and has been prescient, but the focus of that study is on a matter altogether separate from Mr. Malanga’s chart and accompanying post. Yet Mr. Malanga attempts to lead readers to believe that the GAO supports his view that public pension liabilities are not being accurately calculated.

    Mr. Malanga questions my credibility because of his interpretation of the organization that employs me. This is known as guilt by association, and in this case, his interpretation of my employer is uninformed. I raised the issue of credibility not because of Mr. Malanga’s associations or his employer, but because he seems to have a problem with being credible. In this post, he presented not only a chart that is based on an apples-to-oranges comparison, a charge Mr. Malanga does not refute, but he also used the good name of the GAO to support his point by misleading readers about the nature of the GAO study. Likewise, in his September 20, 2012 post, “Pension shootout brewing in Texas,” Mr. Malanga utterly misrepresents the pension reform that occurred in 2010 in Utah, a mischaracterization he has repeated on national television. Readers can read my correction of his misstatement in the responses to that post.

    January 4, 2013 Reply
  22. Keith Brainard

    Throughout his response, Mr. Malanga never refutes my central charge, that his chart is an apples-to-oranges comparison and is therefore misleading and disingenuous. Instead, he defends just one-half of this chart—the oranges half—that supports his point, while criticizing the first half.

    Mr. Malanga’s defense of one-half of the chart is based on the use of “independent economists” who have made their own calculations of public pension liabilities. Mr. Malanga presents these calculations as gospel, as if they are absolute truth. Readers should know that these calculations are not those used by public pension plans, nor are they endorsed by the entity—the Governmental Accounting Standards Board (GASB)—tasked with promulgating such calculations, nor are these necessarily reliable calculations for determining the cost or condition of public pension plans.

    Moreover, the calculations endorsed by Mr. Malanga are not used by the bond ratings agencies, the entities tasked with assessing the condition of the states and cities that sponsor public pension plans.

    The only group, then, that appears to support the calculations supported by Mr. Malanga, are economists. No group involved in the actual practice of administering, regulating, funding, or officially assessing the condition of public pension plans, actually supports the methodology advanced by Mr. Malanga.

    If Mr. Malanga would like to debate the propriety and merits of different methods of calculating pension liabilities, I’d be happy to participate. Readers should be warned, however, that that debate rages without consensus and there are legitimate positions on each side. Indeed, the GASB recently promulgated a new set of public pension standards that fully satisfied neither side of the debate and left both sides with results to applaud and denounce.

    Ironically, after charging that I don’t “bother attempting to explain to the average reader what [my calculations] might mean,” Mr. Malanga proceeds to never bother explaining what his set of calculations means! Instead, he defends the calculations that support his world view solely by citing the credibility of the economists who support such calculations.

    Mr. Malanga’s use of the 1996 GAO study of public pensions is further evidence of distortion and deception: the GAO study was focused not on the issue Mr. Malanga raises, which is the manner in which pension liabilities are calculated, but rather, on the failure by some states and cities to contribute the amount that pension actuaries recommend. To be sure, GAO’s concern about states and cities failing to adequately fund their pension obligations is legitimate and has been prescient, but the focus of that study is on a matter altogether separate from Mr. Malanga’s chart and accompanying post. Yet Mr. Malanga attempts to lead readers to believe that the GAO supports his view that public pension liabilities are not being accurately calculated.

    Mr. Malanga questions my credibility because of his interpretation of the organization that employs me. This is known as guilt by association, and in this case, his interpretation of my employer is uninformed. I raised the issue of credibility not because of Mr. Malanga’s associations or his employer, but because he seems to have a problem with being credible. In this post, he presented not only a chart that is based on an apples-to-oranges comparison, a charge Mr. Malanga does not refute, but he also used the good name of the GAO to support his point by misleading readers about the nature of the GAO study. Likewise, in his September 20, 2012 post, “Pension shootout brewing in Texas,” Mr. Malanga utterly misrepresents the pension reform that occurred in 2010 in Utah, a mischaracterization he has repeated on national television. Readers can read my correction of his misstatement in the responses to that post.

    January 4, 2013 Reply
  23. Tough Love

    Instead of arguing peripheral issues, I would love to hear you try to justify, when (per the US Gov’t BLS, for the vast majority of occupations) Public and Private Sector “Cash Pay” is near equal, that Public Sector workers should enjoy pensions (80-90% of the total cost of which is typically paid for by Taxpayer contributions and the investment earnings thereon) that ROUTINELY have a value at retirement that is 2-4 times (5+ times for safety workers) greater than those of Private sector workers retiring with the SAME pay, with the SAME years of service, and the SAME age at retirement?

    January 4, 2013 Reply
  24. Tough Love

    It seems I forgot to point out that my last comment was address to Keith Brainard.

    January 4, 2013 Reply
  25. Tough Love

    Instead of arguing peripheral issues, I would love to hear you try to justify, when (per the US Gov’t BLS, for the vast majority of occupations) Public and Private Sector “Cash Pay” is near equal, that Public Sector workers should enjoy pensions (80-90% of the total cost of which is typically paid for by Taxpayer contributions and the investment earnings thereon) that ROUTINELY have a value at retirement that is 2-4 times (5+ times for safety workers) greater than those of Private sector workers retiring with the SAME pay, with the SAME years of service, and the SAME age at retirement?

    January 4, 2013 Reply
  26. Tough Love

    It seems I forgot to point out that my last comment was address to Keith Brainard.

    January 4, 2013 Reply
  27. Keith Brainard

    Tough Love – I’ll be happy to have that discussion when you choose transparency over obfuscation and reveal your identity.
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    January 9, 2013 Reply

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