(BigGovernment.news) You won’t hear much talk about publicly in Congress but after all, it is an election year so our leaders can’t be heard openly discussing the next big fleecing of the American taxpayer. But it’s coming, nonetheless, as pension funds around the country that are trillions of dollars in debt begin to fail, one after another.
As reported by AMI Newswire, the poster city for these failed pension schemes is none other than Detroit, but the Motor City is far from the only one in financial danger.
While Detroit teachers have been assured they will be paid through the summer after a two-day sickout this week drew national attention and union rebukes, underlying pension problems in the beleaguered district may portend bigger financial problems — not just there, but nationwide.
Not only have the city’s schools been under emergency management as state lawmakers work to fund a budget that keeps them open, but the struggling urban district is also facing an investigation from the U.S. Department of Education for failure to forward to the Michigan Public Schools Employees Retirement System about $30 million in pension reimbursement funds. The district’s deficit in payments due to its teacher pension fund is now more than $138 million.
The city’s schools have been under emergency management as state lawmakers work to fund a budget that keeps them open. The struggling urban district is also facing an investigation from the U.S. Department of Education for failure to forward to the Michigan Public Schools Employees Retirement System about $30 million in pension reimbursement funds. The district’s deficit in payments due to its teacher pension fund is now more than $138 million.
Joked “Late Night” comic Seth Myers of the pension foible: “How do you make $30 million disappear? Did you finance a Johnny Depp movie?”
The Motor City school system, however, is not alone in a looming pension shortfall crisis: Moody’s Investor Service, a credit rating agency, found that unfunded liabilities to state and local governments across the U.S. tallied about $3.4 trillion.
Last month, Stanford University’s Hoover Institute released a study that looked at pension problems in 564 state and local systems. Hoover described these unfunded liabilities “devastatingly widespread and only getting worse.”
“The problem of unfunded pension liabilities has become too big to ignore,” said the study’s author, senior fellow Joshua Rauh, in a news release about the study. “State and local governments promise guaranteed pensions based on targeted returns that are far from certain. In reality, assets in the pension systems will be insufficient to pay for these promises to retirees, resulting in a heavy burden being placed on taxpayers to make up the difference.”
In Chicago, the public employee pension deficit is now more than $20 billion. The liability has already caused the city to incur a downgrade of its credit rating, creating more headaches for Mayor Rahm Emanuel and earning complaints from unions seeking to protect their retirees.
In New Jersey, pension liabilities for teachers and state government employees combined hit $40 billion. In Kentucky, the total unfunded pension liability for state workers is $41.5 billion, which marks a pension debt bill of about $33,700 per citizen to cover what is due retirees there.
Experts say the pension crisis has been long in the making. Local, city and state governments often underpay contributions to such plans and get behind. Frequently, the return on investment for pension monies isn’t enough to cover pension needs. In addition, fewer younger workers are entering the system and contributing, just as a retiree population keeps growing, leaving an imbalance that has quickly left many plans underfunded.
Jesse Hathaway, a budget and tax policy research fellow at the Chicago-based Heartland Institute, said governments across many states are “over-promising and under-delivering” about their pension investments. “There is a problem in every state.” The best, Wisconsin, is able to cover only about 60 cents on the dollar in pension liabilities, he said, while most other states cover anywhere from 20 to 40 cents.
Hathaway thinks it would be helpful to consumers if states were more open in sharing how their finances were shaking out, allowing workers the choice to invest with the state or choose private investments for their retirement money.
Looking ahead, as deficits continue to grow, states have two main choices in solving pension fund issues — telling workers that they will receive less than planned (which some state constitutions don’t allow) or raising taxes to cover the shortages, which he says could drive the consumer base and much needed revenue out of a state all together.
“The consumers have no choice but to do business with the pension boards,” he said. “But I think breaking the monopoly that the government pension board has over who their workers do business with in investing would go a long way toward helping to solve the problem.”
But don’t for a second think that bailouts from the federal government aren’t on the table. This was an issue as far back as the 2012 presidential election, and it continues to be examined in some government circles today.
Reporting by Andrea Billups for the American Media Institute.
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