Today, U.S. Senator Jim DeMint (R-South Carolina), ranking Senate Republican on the Joint Economic Committee (JEC), announced the release of a new JEC staff report, "The Pending State Pensions Crisis.
"This is an alarming report that shows the multi-trillion-dollar state debt crisis is already upon us," said Senator DeMint. "For decades, state and local politicians have put their own interests ahead of their constituents. It's only a matter of time before those same politicians -- drowning in debt they created -- put their own interests ahead of other people's constituents, too, by asking for a federal bailout of their unsustainable pension obligations. Reckless state and local politicians will not put pension reform on the table until Congress takes a pension bailout off the table. Federal bailouts would force taxpayers in fiscally responsible states to shoulder the bad decisions of irresponsible states. State policymakers whose failures created this crisis must be responsible for solving it."
This is the third part in a series of reports on the state pensions crisis. Earlier reports can be found here:
Part 1: The Coming State Pensions Crisis
Part 2: States of Bankruptcy
Highlights of the new report include:
Total state debt now exceeds $4 trillion, including $2.9 trillion in unfunded pension benefits and at least $627 billion in other post-employment benefits.
States are already heavily reliant of federal funds. In 2011, federal grants-in-aid to state and local governments topped $600 billion, which amounted to almost 30% of states' total revenues, 16.8% of total federal outlays, and 4.1% of U.S. GDP.
Over the past five years, state and local governments have underpaid actuarially required pension contributions by more than $50 billion.
State and local employees currently receive 43% more in total compensation compared to their private sector counterparts. It is not sustainable to have public servants making more money than the public paying their salaries.
Pension benefits can take precedence over virtually all other forms of spending, meaning retired teachers receive their pension checks even before current teachers receive their paychecks.
Politicians in some of the most troubled states and localities have already sought bailouts. A Detroit, Michigan congressman introduced a bill that seeks half a billion dollars in federal loans to cover the city's financial crisis and underfunded pension program. The Illinois Governor's 2012 state budget proposal suggested seeking a federal guarantee of state pension debt to improve the solvency of the state's pension funds. California's Proposition 31, on the ballot this November, could shift any potential state-level burdens from future municipal bankruptcies onto taxpayers in other localities.
If the states with the most troubled pension funds come to Washington for a federal bailout, the burden of this bailout will be borne disproportionately by states that already pay the highest share of per capita federal taxes and states with relatively sound pension systems.
If states and localities receive a bailout equal to 50% of their unfunded pension liabilities, and that bailout is financed entirely through income tax increases, the five biggest winners would be: Ohio, Illinois, Rhode Island, New Jersey, and Oregon, and the five biggest losers would be: Virginia, Tennessee, North Dakota, Maryland, and Nebraska.
Until a federal bailout is taken off the table, states that enact prudent policies and take the often painful actions required to live within their means will risk being penalized, while states that are unrestrained and irresponsible in their spending and promises will hold out for a federal recompense.