There was an article in Saturday’s NYT entitled “In Budget Crisis States Take Aim at Pension Costs“. It quotes a pension expert who finds that states like Connecticut, Illinois, Indiana and New Jersey are less than 10 years from exhausting their pension funds.
However, as the article says “…paying public pensions straight out of general revenue would be ruinous. In Illinois’s case, it would consume about half the state’s cash every year, bringing other vital state services to a standstill.”
That reminds me of a widely circulated remark by David Crane, a Democrat who is the top pension adviser to California Gov. Arnold Schwarzenegger: “One cannot be both a progressive and be opposed to pension reform. The math is irrefutable that the losers from excessive and unfunded pensions are precisely the programs progressive Democrats tend to applaud. Those programs are being driven out of existence by rising pension costs.”
Crane’s comment was mostly picked up by conservative commentators, but that doesn’t diminish its truth.
Massachusetts is not mentioned in the NYT article, but a recent report from the Pew Center on the States entitled “The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform” does not give our state very good grades. Massachusetts was one of 19 states in the worst category (“Meriting Serious Concern”) for adequacy of pension funding, with only 63% of accrued liabilities funded. Massachusetts is similarly is in the lowest category (with 41 other states) for retiree health care funding, with 1.8% of retiree health care and other non-pension obligations funded. Amazingly, states only had to start recognizing these non-pension obligations in 2006.
The report notes that the staggering deficits reflect states’ lack of discipline during the fat years, including failing to make payments for pension systems at the levels recommended by their own actuaries; expanding benefits and offering cost-of-living increases without fully considering their long-term cost or how to pay for them; and providing retiree health care without adequately funding it
I realize that the legislature has just passed important pension reforms, but I believe those reforms addressed overly generous pension rules, not the solvency of the system.
I realize no Democrat is going to win a popularity contest leading on this issue … but we are at a stage where if we don’t address these problems aggressively now the alternatives will be much worse – and the burden less fairly shared – in the future.