The Morning Report
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The New York Times published a very timely story this morning, using San Diego’s financial mess to foreshadow what might come in other cities and states across the country that have engaged in similar financial practices with their retirement systems.
The story says that by some estimates, states and cities across the country owe their retirees about $375 billion more than they have committed their retirement funds, a number that could be much smaller than the real shortfall.
The Times cites one calculation from Barclays Global Investments as projecting an $800 billion pension gap – if state pension plans were required to use the same accounting methods as corporations.
The article discusses the underfunding of San Diego’s pension system and the practices that have led other states and cities into pension debt. It also quotes former Securities and Exchange Commission Chairman Arthur Levitt, who led the audit committee, as saying he has become “obsessed with cleaning up the municipal securities markets.”
The article points to New Jersey and Illinois as examples of states that have made choices that have proved devastating to their budgets.
… officials in Trenton have been shortchanging New Jersey’s pension fund for years, much as San Diego did. From 1998 to 2005, the state overrode its actuary’s instructions to put a total of $652 million into the fund for state employees. Instead, it provided a little less than $1 million. Funds for judges, teachers, police officers and other workers got less, too.
The NYT piece does note, however that “few governments have been as reckless as San Diego officials in granting pension increases at the same time as they were cutting back on contributions.”
You can read the full story here.