Today, U.S. Sen. Jim DeMint (R-South Carolina), the Senate’s strongest voice for principled conservatism, joined with John Tillman, CEO of the Illinois Policy Institute at the Cato Institute to pledge his opposition to a federal bailout of underfunded state pension systems.
After the housing market collapse, it appears that pensions for public sector employees may be the next major economic bubble to burst.
In the era of Obama, as the national debt surpasses $16 trillion(!), the answer to all economic questions seems to involve massive Federals bailouts.
Therefore, the Illinois Policy Institute, a non-partisan policy think tank which is part of the State Policy Network, has launched a new campaign, called the Pension Project, to sound the alarm as state bureaucrats attempt to cover up their mismanagement of employee pensions by giving taxpayers the bill.
Here is an interactive map to see how bad the public pension problem is in your state, and here is a list of what states will be “winners” or “losers” if the Federal government bails out pensions.
Across the nation, state government pension systems are underfunded to the tune of $2.5 trillion. Rhode Island and Utah are among a handful of states that have tightened their belts and are aligning retirement promises with reality. Meanwhile, other states continue to spend beyond their means. Illinois, for example, faces more than $167 billion in state pension debt. Yet the state’s Fiscal Year 2012 budget book identified “a federal guarantee of [pension] debt” as one of the possible ways to reconcile this massive red ink. As IPI notes, their state of Illinois has failed to pass meaningful pension reform.
“The only way to force recalcitrant states to put fiscal reform on the table is for Congress to take state bailouts off of it. Congress must make plain that the taxpayers will not protect reckless state policymakers from the consequences of their policies,” said Sen. Jim DeMint (R-SC). “Prudent states cannot be forced to shoulder the bad decisions of irresponsible states. State policymakers whose failures created this crisis must be responsible for solving it. It is simply wrong for taxpayers who live within their means to be forced to bailout governments that did not.”
IPS has has developed a model to measure the impact of a federal bailout of state pension debt. To finance a bailout of all state pension systems, the federal government would have to raise taxes and cut federal spending by $2.5 trillion. States with the biggest pension liabilities, such as Illinois, would benefit tremendously from a bailout. Meanwhile, most other states would suffer.
Ted Dabrowski, VP of Policy for the Illinois Policy Institute, said “A federal bailout of state pensions will reward fiscally irresponsible states like Illinois and California and punish those states that are working hard to solve their problems. A bailout would force taxpayers in states like Tennessee and Virginia to pay for the failures of Illinois. Thats not only bad economics – it’s just plain wrong.”
For too long, states have been able to delay reforming public pensions, with exaggerated forecasts and accounting practices which would be criminal in the private sector. As states find other ways to spend taxpayer dollars, too little is invested in pensions compared to what is promised. And as more teachers, police officers, and state employees reach retirement age, the strain on these pensions become even greater.
Ideally, pensions should not be touched by the political process. There are enough private portfolio managers in the Yellow Pages who can offer clients a decent rate of return, depending on the amount of risk and time they have until retirement.
But right now, state pensions need reform, and quickly! The federal government should not be in the business of proping up states which don’t know how to balance their books.