It seems that the East Coast’s school is operating a center with far reaching research, and it’s a resource that few on the West Coast are paying attention to.
The Center first caught my attention with a brief discussing the implications that the financial crisis will have on state and local pensions.
Covering several topics, the paper outlined how the funding and reporting of various pension programs have changed in the last fifty years. Highlighted in this section is the progress that some funds made in the 1980s to restore sustainability.
The paper also discusses the decline in aggregate funding of the nation’s pension plans between 2008 and 2009. It uses that decline as part of its model for five-year outlooks, extending to 2013. In those five years, using a modest expectation of stock and equity performance, the authors predict that the funding level will continue to drop, bottoming out at approximately 72%.
That paper describes a “perfect storm” of conditions that have lead to the drastic deterioration of pension funding:
“The current and future funding status of state and local pensions is crucially important, as state and local governments are facing a perfect storm: the decline in funding has occurred just as the recession has cut into state and local tax revenues and increased the demand for government services.”
In October 2010, the Center published another brief describing how public pensions would impact state and local budgets.
While much is said about who is responsible for the problem, or who is responsible for the solution, this brief outlines three scenarios for solution, and applies those same solutions to six sample states, including California. The revelations in this paper present a harsh revelation for local governments:
“States with seriously underfunded plans and/or generous benefits, such as California, Illinois, and New Jersey, would see contributions rise to about 8 percent of budgets with an 8-percent discount rate and 12.5 percent with a 5-percent discount rate. And, in states such as California, local governments make more than half of the contributions, which means that the burden of increased future pension contributions will fall on the shoulders of localities as well.”
This year, the Center published a study on the affect that pensions could have on state borrowing costs.
As Moody’s has recently announced, pension debt can be counted for or against a state’s credit ratings. As a result, states like California with large portions of its major pension unfunded, the effect on borrowing rates in the past has been modest. However, as the percentage of the state budget that is allocated to pension costs increase, the affect of that debt could also rise.
In California, where so much of our funding relies upon the ability to secure bonds and loans, a reality where interest rates continue to rise is a scary proposition.
The most recent tool to come out of the Center is a database of public pensions. Having compiled more than 90 variables from each of the 126 state and local pensions included in the database, the data is truly representational of the status and outlook of local and state pension funds.
The Center was founded in 1998, and has been providing information to decision-makers in the public sector every since. You can join their distribution list to have instant access to the newest data published by going to this link.