Five years from now, one issue is going to dominate the news on the state and local level. It's not going to be civil marriages or abortion of light rail. It's going to be unfunded pension liabilities. Nearly every city, county, and state government body has promised over-generous pensions to millions of their employees, and almost none of them have been putting any money aside to fund these future liabilities (unlike those evil and untrustworthy private companies, who may not always put enough aside but are at least doing something).
Most of us know that the government uses accounting methods and practices that would put private individuals in jail. For example, Enron managers have gone to jail for accounting practices that allegedly attempted to hide liabilities and keep them off financial statements. The government does this all the time, and routinely.
Over the next few years, the GASB will require that governmental bodies reveal the size of these unfunded liabilities. And you heard it here first, the numbers are going to be MASSIVE. I am almost sure that the numbers will dwarf the shortfalls in Social Security and maybe Medicare as well. Anyone want to be that politicians will propose to close these gaps by intelligent spending cuts rather than new taxes? HAH!
A common criticism of Social Security choice
(and defense of the Social Security status quo) is that there
are dishonest actors in private markets who would put people's private
account assets at risk of (in the words of the AFL-CIO) "corruption, waste and Enron-ization." These critics argue that society is much better off keeping Social Security in the honest, benevolent hands of Uncle Sam.
What must these critics be thinking about today's NYT above-the-fold article on teacher pension fund shenanigans in New Jersey? The lede says it all:
In 2005, New Jersey
put either $551 million, $56 million or nothing into its pension fund
for teachers. All three figures appeared in various state documents "”
though the state now says that the actual amount was zero.
Like many state and local government pension systems,
New Jersey's is woefully underfunded compared to the benefits it will
have to pay in the future. (This situation will make headlines in the
coming years, as state and local governments begin to disclose their
pension fund and retirement benefit system shortfalls in accordance
with a recent GASB
requirement.) In New Jersey's case, the shortfall is more than has been
publicly acknowledged, however: "an analysis of its records by The New
York Times shows that in many cases, New Jersey has overstated even
what it has claimed to be contributing, sometimes by hundreds of
millions of dollars."