Rick Manning
By Rick Manning || U.S. Senator Orrin Hatch released a shocking report on January 10 regarding the outstanding public debt that threatens to sink our state and local governments under a sea of red ink.
Hatch, who serves as the ranking member of the Senate Finance Committee rang alarm bells over the public pension debt shortfalls that beset state and local governments – debts which may exceed $4 trillion. Perhaps as stunning as the overall public pension shortfall is the fact that a key member of the U.S. Senate cannot definitively report on exactly how much debt is owed because there is little transparency for public employee pension plans.
Adam Bitely of Americans for Limited Government reported in July of 2011 on how the Commonwealth of Virginia was manipulating its budget to appear to have a surplus while underfunding the public employee pension fund.
“Each year, the General Assembly is supposed to make payments to the Virginia Retirement System (VRS), a pension fund for state employees,” Bitely wrote. “For the past two years, the General Assembly, along with Governor McDonnell, have neglected making these payments in full, allowing VRS to be underfunded. Currently, the state owes around $620 million to the VRS.”
Conveniently, the payments are being skipped until 2013, the year that Governor McDonnell leaves office.
As Virginia political blogger Doug Mataconis put it, “here in Virginia we have a ‘surplus’ of $311 million. That money will go, by law, in to education funding and into the state’s ‘rainy day’ fund. In reality, though, is what we’ve got a cooked set of books that says ‘+$311,000,000’ with a little entry at the bottom of the page that says ‘I.O.U. $620,000,000.00.’”
But Virginia is hardly alone in facing a future public employee pension funding crisis. The Hatch report states that 31 states have underfunded plans and eleven states are projected to have exhausted all of their pension assets by 2020.
To make matters worse, the report finds that there is an acute risk of these pension debts leading to the insolvency of large states like California or Illinois that, “could damage the fiscal health of the United States.”
Hatch points out that the California economy alone is around the size of Italy, and the demand for a bailout from a state with one out of every nine members of the U.S. House of Representatives would be intense.
The Utah Senator rightly asserts, “a Federal bailout of the states must be avoided at all costs. Responsible states that have prudently managed their pension plans and pose no risk of financial contagion to their neighbors, and the American taxpayer, cannot be asked to bailout states that have underfunded pension liabilities for public employees.”
However, the underfunding of public pensions also means that government retirees and employees will likely end up with much lower retirement payments than they planned on receiving.
Municipal bankruptcies in Vallejo, California; Pritchard, Alabama and Central Falls, Rhode Island all have retirees facing the loss of expected retirement benefits, and given the dire projections for state retirement plans it is likely that a shock wave will hit state retirees in the years ahead.
As state legislatures head back into session, it is time for elected officials to rethink the entire public pension promise. The American Legislative Exchange Council (ALEC) – an organization comprised of nearly 2,000 state legislators – produced model legislation last year that would convert old style defined benefit plans to modern defined contribution plans, essentially converting the pension to a 401(k) plan like most private sector employees have.
Hatch’s report is a clarion call to the coming crisis. It is time for the taxpayers of each state to demand that their elected state representatives tackle it before their state gets overwhelmed with debt and the very public employees who will fight change find themselves with little pension and no future.
Rick Manning is the Director of Communications for Americans for Limited Government. You can follow Rick on Twitter at @RManning957.
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By jed January 11, 2012 at 11:35 am
I don’t know where Mr. Manning lives, but saying that ‘most private employees’ have a defined contribution plan, or ANY pension plan for that matter, sounds like wishful thinking to me.
By Name January 11, 2012 at 3:58 pm
Senator Hatch just wants to steal more money from the public coffers for himself. Look at how he panders for special interest in this article: http://www.thenewamerican.com/usnews/politics/10501-sen-orrin-hatchs-own-geothermal-solyndra-scandal
His seniority of the Finance committee is becoming a bigger problem because he’s more of a target for lobbyists and certainly is willing to entertain them. He’s voted for 16 debt ceiling increases this guy- he doesn’t care about balanced budgets- Medicare part D and SCHIP he voted for- he’ll do whatever it takes to maintain his throne.