A new report from the Hoover Institution written by Senior Fellow Joshua Rauh and entitled “Hidden Debt, Hidden Deficits: How Pension Promises Are Consuming State And Local Budgets,” does a masterful job illustrating the true severity of America’s public pension crisis, a topic to which we’ve dedicated a substantial amount of time over the past couple of years.
As part of the study, Rauh reviewed, in detail, 649 state, county and local pension systems in the United States and ranked them based on funding status and impact on local budgets. What he found was a hidden taxpayer debt burden, in the form of underfunded pensions liabilities, totaling over $3.8 trillion. Of course, as we’ve pointed out multiple times as well (see “An Unsolvable Math Problem: Public Pensions Are Underfunded By As Much As $8 Trillion“), Rauh argues that that $3.8 trillion taxpayer obligation is actually much larger if you apply some “common sense” math as opposed to “pension math.”
As of fiscal year 2015, the latest year for which complete accounts are available for all cities and states, governments reported unfunded liabilities of $1.378 trillion under recently implemented governmental accounting standards. However, we calculate using market valuation techniques that the true unfunded liability owed to workers based on their current service and salaries is $3.846 trillion. These calculations reflect the fact that accrued pension promises are a form of government debt with strong rights. These unfunded liabilities represent an increase of $434 billion over 2014, as realized asset returns fell far short of their targets.
This post was published at Zero Hedge on May 24, 2017.