Nationwide, unfunded pension liabilities—the gap between the amount needed to pay for promised pension benefits and the amount set aside for them—grew to nearly $1.3 trillion in fiscal year 2022. The pension funding shortfall increased to nearly 66% of states’ own-source revenue (all taxes and fees levied and collected directly by the state in 2022).
This is a Macroeconomic problem because state pension and retiree healthcare obligations can crowd out current and future (bond-financed) spending in states as well as require increased tax revenue.
It’s worth considering this when choosing a state to live in. There’s a large discrepancy between states. One way or another these obligations must be paid.
Just a few big city and absolutely any state governmental bankruptcies will trigger a…uhm… very stinky nationwide mess, and ruination to even marginal states.
I would flee Illinois, and apparently more and more Illini agree.
I didn’t read the article, but I bet IL is somewhere up there. For decades they’ve been granting anything and everything to their employees and retirees. Remember the Mishedlo board? Well, Mish moved out of Chicago, IL a few years ago precisely due to the tsunami of obligations that may consume almost the entire budget. I think he’s in UT now.
Illinois lost a net 208 single-establishment firms to out-migration in 2021, the 3rd-worst loss behind only New York (-487) and California (-456)…
Wirepoints also calculated the business gains/losses per 1 million residents to take into account state size. Illinois ranked 2nd-worst nationally, with only New York experiencing a bigger loss.
Didn’t Detroit go through this a few years ago. There were even plans to sell art from the art museum.
Seems to have worked out ok.
I talked about that recently. Yes, the money interests wanted to auction off the city owned works in the Detroit Institute of Art. A few very well heeled people in metro Detroit put up enough money to backfill the pension fund, in return for the art works staying at the DIA. (Michigan state law says pension fund assets cannot be used to satisfy the money interests in a bankruptcy proceeding, but the proceeding for the city was in Federal court, so the pension fund, which a corrupt previous mayor (whose sentence was commuted by his nibs) looted, was not protected by the state law.)
It used to be that “patrons of the arts” funded art galleries, museums, and libraries. Then, seems they figured out they could get the government to tax the Proles, to subsidies their arty hobbies. (insert “Yes Minister” clip debating subsidizing the opera, for the well heeled elites, vs subsidizing football for the Proles)
Tax deduction for gift to charity seems reasonable to me. Especially when donated art is available on public display. Sale of donated art to pay down city debt is extreme. I’m glad that didn’t happen.
Same seems to apply in dealing with national debt. Selling off unused federal office buildings is ok. You would hate to see a famous federal building with a McDonalds sign on it. Sales of national parks goes too far. But sale of much federal land might be ok. Timber rights. Mineral rights. Etc etc. Has to be selective and someone will always object.
Losing business certainly doesn’t help with tax revenue. Even if states and municipalities fix that to help pay off debt, they still need to reevaluate their investment strategies - It appears that the real estate bust had a significant impact on their unfunded liabilities after their pension investments went poof!
It’s amazing to me how smooth the liability line is. In effect, the problem is well known. What is trully illogical is why escalating measures over time have not been taken to remedy.
It’s as simple as “funding” at a 10% additional rate from the dislocation. By now, those measures would have been wildly successful.
But then again, this is not a business, so, logic rarely applies.
For the record, there are tons of businesses with underfunded pension liabilities, so I’m not sure the logic of “it’s government, of course it’s wrong” applies.
That said, it is different. It takes a crisis, or a most adept politician to convince people they need to raise tax rates and/or convince large swathes of the public (public service unions: police, fire, EMT, etc) that they’re going to get rogered “for the greater good.”
I have little doubt that there are some abuses that need to be reigned in. In Chicago I’ll name two: extra extra extra helpings of overtime in a person’s final year or two to make their pension payout far grander than it otherwise would be, it’s a “lose lose” because the OT is, if not fictitious probably unnecessary, and the pension payout goes for years and years.
The second is an issue they’ve been trying to adjudicate for years: road crews with traffic disruption have to have a live in-person cop on duty with them at all times, when clearly a lower tier “traffic manager” could handle the routine job of waving at people as they drive by. But the union loves it because “more jobs” and “more overtime.” The city hates its, but hasn’t been willing to take a strike to get rid of it.
So yes, there are problems, but they are not unique to government.
A few years ago (more than 2?) we, METAR, were discussing ‘unfunded pensions’, and why.
IIRC, there was mention that ACTUARILY it makes sense to only fund ‘up to x%’.
Cause, again IIRC, funding up to 100% results in ‘less efficient allocation of funds’.
Anyway, that’s what I think I remember.
ChatGPT says that ‘pensions use amortization tables to ‘smooth’ funding obligations’, oh… and ‘assumptions for future revenues and expenditures’.
Tx has, in the past, funded about 70-75% of its state pension obligations.
Due to ‘public angst’, TX has implemented ‘plans’ to bring the Obligations for its various pensions … to a higher percentage.
ChatGPT says that as of 2023, TX overall is funded at about 69%.
But that is an ‘average’ of all the different pensions that TX manages.
For example:
TRS, 2023, is funded at 77%.
Dallas Police n Fire Pension (DPFP), 2023, at 39%. (thirty nine percen)t.
The ‘plans’ that will supposedly bring the TX pensions to ‘fully funded’… range from ‘ERS by 2054, to DPFP by 2105’.
I got maybe another 30 years… so… 2055?
It’ll be fully funded in MY LIFETIME!
That’ll rank up there with common place humanoid robots, infinite abundance, and thriving Mars colonies. LOLOLOL.
