by Thomas J. Healey, Carl Hess and Kevin Nicholson
Remember those scary headlines about the looming crisis in state and local government pensions? The headlines went away; in this era of institutionalized attention deficit disorder, no news story can survive long if fuel isn't added to the fire. But the slow-motion crisis is still very much with us. Estimates of the total public pension shortfall - the amount of money it would take to cover currently accrued pension obligations, provided the cash were deposited today - range from $730 billion to $4.4 trillion, with many financial economists inclined toward the latter number. For the sake of comparison, an unfunded lia- bility of $4.4 trillion is equal to one-third of the country's GDP, or ￼roughly all the taxes that state and local governments are likely to collect in the next two years.
Moreover, the pension hole continues to deepen in every part of the country, in large part because the returns on investments made with plan assets have been far below projections. Using the figures released by the states and localities themselves, Wilshire Consulting estimates that the market value of the assets of the 126 largest public pension plans shrank from funding 95 percent of lia- bilities in 2001 to 74 percent in 2011. States with the highest percentage of unfunded pension liabilities include Oklahoma, Arkansas, Indiana, Illinois and Connecticut. Some localities are in equally bad shape: Chicago, New York City, San Francisco and Boston are all among the cities with the greatest unfunded liability on a per-household basis.
Compared with their private-sector counterparts, public employees have fared exceptionally well on pensions. Workers at the state and local levels have gained average increases in their promised retirement compensation that far outpaced increases won by private sector employees in recent years. From 1998 to 2010, the gap between the two sectors grew from $4,700 to $8,400 per year, in large part because most governments still offer classic defined-benefit pensions while private em- ployers have typically switched to leaner defined-contribution plans or abandoned pensions entirely.
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