Walter Mencken 11:31 a.m., Feb. 1
NY Pension System Underfunded; State Broke
Today's (Sept. 11) New York Times has an op-ed piece that should shake up the home state. The lead paragraph states, "New York's pension system is underfunded by tens of billions of dollars and...as a result, the state is essentially insolvent." The author is chairman of the group that oversees New Jersey's pension system. That state, at the insistence of the Securities and Exchange Commission, recently agreed that it would never again fraudulently hide its underfunding of its pension system. One problem, says author Orin Kramer, is that the SEC can only force a state to follow budgeting rules of the Governmental Accounting Standards Board, and these rules "allow governments to base their budgets on economic fictions."
Corporations measure their pension funds' assets based on real market prices. But public pension funds measure assets based on average values "looking back over a period of years," says the author. (That's true of San Diego's funds.) If one uses government accounting standards, U.S. state and local governments are underfunded by $1 trillion. If one uses corporate accounting standards, the shortfall is $2.5 trillion. If one assumes corporate standards are too lenient, as economists generally do, then the shortfall is $3.5 trillion, or one-fourth of the U.S. economy's total annual output of goods and services, or gross domestic product, says Kramer.