COMMENTARY:
Even dim light of phony numbers reveals certain catastrophe of public pension
crisis
Posted on December
15, 2011
By Frank Keegan
Why would
politicians and union bosses oppose new rules encouraging better disclosure of
our public pension crisis when actually those rules barely scratch the surface?
Because even a little honesty is too much for them. They will have to confess
they deceive taxpayers, bond buyers and public workers about accounting tricks
that loot pensions. Any ray of light exposes them.
Merely take
a look at two recent studies comparing the latest numbers with how they look
under the new rules. They look bad.
For decades, politicians and government union bosses partied
hearty running up a $4 trillion tab falsely balancing their budgets
by tapping into pension money. They and their cronies still skim billions of
dollars off the top through fees and what they refer to as “expenses.”
They want to keep draining that fat artery of the body
politic, and new rules proposed by the Government Accounting Standards Board threaten
their sweet thing. So they oppose change with the ferocity of vampires exposed
to light.
What would be funny if millions of taxpayers and public
workers were not at risk is the fact that these new accounting rules still let
politicians continue deceiving us.
The studies on the impact of the new rules show that while
they will tell us a little more about how dire the state and municipal pension
crisis is, wiggle room remains.
One study just released by the Center for Retirement
Research at Boston College, "How Would GASB Proposals Affect State and Local
Pension Reporting?," ran calculations for 126 pensions under
the proposed rules. The results are scary.
“Funded ratios,” the amount of money available to pay
pension promises, will decline precipitously. “The bottom line is that the
headline number will decline in 2010 — the latest year for which data are
available — from 77 percent to 53 percent.”
That means somebody has to make up the difference, 47 cents
for every dollar in pension benefits paid. Politicians just assume ignorant,
docile taxpayers will roll over for crippling tax increases and service cuts.
We always do, right?
But the bigger problem is no matter how bad these new
accounting rules show things are, things actually are worse.
CRR admits, “The new GASB discounting proposal fails on a
number of counts….”
That failure, “makes the numbers even more difficult to
interpret and difficult to adjust … makes comparisons across states and
localities impossible … create(s) unnecessary confusion …” and “…not only
represents a loss in analysts’ ability to assess how close plan contributions
are to those required to keep the system on track but also creates an escape
valve that states could use” to keep running up a secret credit card bill
future taxpayers never will be able to pay off.
In the other recent study, Robert Novy-Marx
invoked a baseball legend in "Logical Implications of GASB’s Methodology for Valuing
Pension Liabilities" “to show that GASB accounting is
susceptible to the ‘Yogi Berra fallacy,’” by allowing politicians to
deceptively slice and dice numbers.
“Yogi Berra famously once told a waitress, ‘You better cut
the pizza in four pieces, because I'm not hungry enough to eat six.’ The
absurdity of this statement is self apparent. A pizza is a pizza. How it is cut
has no impact on the extent to which it satisfies a hungry diner. The same is
true for a particular set of assets and liabilities, a fact not reflected in
the GASB methodology.”
Novy-Marx points out the tragedy looming for America when we
find out no matter how politicians slice it, there isn’t going to be enough
pension pizza to feed everybody:
“State and local government spending makes up one-eighth of
the U.S.
economy. Sub-national government entities employ one out of seven U.S. workers,
and these workers generally participate in state-sponsored defined benefit (DB)
pension plans. Many of these workers have no savings, and roughly 30 (percent),
mostly public safety workers, are not enrolled in Social Security, meaning that
these plans represent many public employees’ sole source of post-retirement
income.”
What is going to happen to them when the money runs out and
taxpayers go broke? That's not some distant theoretical question like Social
Security pretends to be. According to CRR, even under the best
of scenarios, the national average “Run-Out Date” for state and municipal
pensions is only 30 years from now. For the worst case, Kentucky, it’s in five years.
This is going to happen no matter how many so-called pension
reforms states inflict on new workers.
Worse, according to Novy-Marx, is that the proposed
accounting rules not only still allow politicians to lie about how big this
debt really is, the rules actually encourage more risky investing and continued
borrowing in secret.
That means every year hidden debt to state and municipal
workers keeps getting bigger than the new rules would show. How big? “…
GASB under estimates the true cost of state and local government workers by
almost a hundred billion dollars a year.”
Even for politicians used to squandering other people’s
money, that adds up over time to more than America ever can pay. Rank-and-file
public employees are going to take a big hit.
Why state and municipal workers continue to cling to those
who betray them is something behavioral psychologists will have to figure out
some day.
What they should demand right now is even more stringent
accounting standards that could shine a brighter light on how big that hit is
going to be.
Only then can we force politicians to do something about it.
Frank Keegan is a national editor for The Franklin Center for Government and Public Integrity,
watchdog.org
and statehousenewsonline.com
. Any disgusted public employee, journalist, activist organization or citizen
watchdog who wants help exposing government waste, fraud and abuse may contact
him at: frank.keegan@franklincenterhq.org
For a comprehensive primer on
state and municipal government pensions, check Statebudgetsolutions.org and sunshinereview.org . And for an aggregation of news from around
the country, check Pensiontsunami.com .
http://www.franklincenterhq.org/2884/commentary-even-dim-light-of-phony-numbers-reveals-certain-catastrophe-of-public-pension-crisis/
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