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Call the feds!

More and more states and local governments are finding their pension plans eating into their budgets, a problem that first slapped the city of San Diego years ago. San Diego’s difficulty in cutting costs — $2 billion remains unfunded — shows how hard everyone else might find it, too.

The answer is the U.S. government, said former Los Angeles Mayor Richard Riordan and Alexander Rubalcava, the president of an investment advisory firm. The two wrote an op-ed in The New York Times this week arguing for a federal bailout of local pension funds, but not by just cutting checks.

Instead, borrowing a page from the Education Department’s Race for the Top initiative, which provides money to states that propose significant reforms for their public school systems, it should strike a grand bargain with city and state pension funds: in exchange for capping their liabilities and adopting better management practices, they could cover their costs through tax-free, federally guaranteed securities.

To qualify, the pair wrote, state and local governments would have to report their pension debts accurately, cap its liabilities and move all new workers to a 401(k) retirement plan, which typically would be less costly for employers than traditional defined benefit plans. In exchange, the federal government would guarantee new tax-free “pension protection” bonds that would allow pension funds to pay off their debts more cheaply.

Riordan has been one of the highest-profile pension alarmists in recent months. He and Rubalcava published an op-ed in The Wall Street Journal in May arguing that the city of Los Angeles likely will declare bankruptcy by 2014 because of its crushing retirement debts.

Please contact Liam Dillon directly at liam.dillon@voiceofsandiego.org or 619.550.5663 and follow him on Twitter: twitter.com/dillonliam.

Liam Dillon

Liam Dillon was formerly a senior reporter and assistant editor for Voice of San Diego. He led VOSD’s investigations and wrote about how regular people...

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