The Pension Problem Numbers

Just a few minutes but I did want to note this article from US News. It’s as good a short compendium of the crisis in state pensions and naturally state budgets as you will find. The following excerpt describes perfectly how dire a situation the various states face:

As strapped state and local governments scramble for ways to balance their budgets, it’s become very clear that it will be impossible for many to honor their pension promises to new employees and even current retirees. According to a recent economic study, the cost to fully fund these promises would cost taxpayers $5 trillion over a 30-year period, or nearly $1,400 a year in higher state and local taxes and fees for every household in the country.

Put another way, contributions to pay for public employees’ retirement benefits now total 5.7 percent a year of all state and local taxes, fees, and other government charges. “Government contributions to state and local pension systems must rise to 14.1 percent” to produce fully funded pension systems, the study said, and it will take 30 years to get there.

The article is balanced and rightly points out that there could be changes either to the pension systems or to investment returns which could mitigate the problem. Of course, it can always get worse though probably only marginally given the nearness that many of the most strapped governments are to the end of the road.

I intend to write a bit more about this shortly, but there may be an easy way out for some of the states in the most dire straits. Specifically, the development of oil and gas reserves – the brown revolution – could well provide a gusher of revenue. The attendant political and economic ramifications of the development of these reserves is fascinating but it might prove to be the solution. If, of course, it happens. I’ll get into this more in the next few days.

In the meantime, do take a look at the US News article. The table at the end of the article will give you a sense of just how deeply your state might be in the can.

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