Six Terrifying Graphs That Summarize America’s Public Pension Crisis, by Tyler Durden

It’s a question of when, not if, myriad public pensions go broke. From Tyler Durden at zerohedge.com:

A new report from the Hoover Institution written by Senior Fellow Joshua Rauh and entitled “Hidden Debt, Hidden Deficits: How Pension Promises Are Consuming State And Local Budgets,” does a masterful job illustrating the true severity of America’s public pension crisis, a topic to which we’ve dedicated a substantial amount of time over the past couple of years.

As part of the study, Rauh reviewed, in detail, 649 state, county and local pension systems in the United States and ranked them based on funding status and impact on local budgets.  What he found was a hidden taxpayer debt burden, in the form of underfunded pensions liabilities, totaling over $3.8 trillion.  Of course, as we’ve pointed out multiple times as well (see “An Unsolvable Math Problem: Public Pensions Are Underfunded By As Much As $8 Trillion“), Rauh argues that that $3.8 trillion taxpayer obligation is actually much larger if you apply some “common sense” math as opposed to “pension math.”

As of fiscal year 2015, the latest year for which complete accounts are available for all cities and states, governments reported unfunded liabilities of $1.378 trillion under recently implemented governmental accounting standards. However, we calculate using market valuation techniques that the true unfunded liability owed to workers based on their current service and salaries is $3.846 trillion. These calculations reflect the fact that accrued pension promises are a form of government debt with strong rights. These unfunded liabilities represent an increase of $434 billion over 2014, as realized asset returns fell far short of their targets.

Governmental accounting standards for pensions underwent some changes in 2014 and 2015 with the implementation of Governmental Accounting Standards Board (GASB) statements 67 and 68, procedures which require state and local governments to report on the assets and liabilities of their systems with a greater degree of harmonization. However, these standards still preserved the basic flaw in governmental pension accounting: the fallacy that liabilities can be measured by choosing an expected return on plan assets. This procedure uses as inputs the forecasts of investment returns on fundamentally risky assets and ignores the risk necessary to target hoped-for returns.

Specifically, the liability-weighted average expected return chosen by systems in 2015 was 7.6 percent. A 7.6 percent expected return implies that state and city governments are expecting the value of the money they invest today to double approximately every 9.5 years. That means that a typical government would view a promise to make a worker a $100,000 payment in 2026 as “fully funded” even if it had set aside less than $50,000 in assets in 2016; a similar payment in 2036 would be viewed as “fully funded” with less than $25,000 in assets in 2016.

With that intro, here are the stats on the worst funded public pension plans by state, county and city.

To continue reading: Six Terrifying Graphs That Summarize America’s Public Pension Crisis

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