State and Municipal Pensions are Busting Budgets even in tiny Rhode Island

Posted by PITHOCRATES - November 13th, 2011

Week in Review

If you thought states and municipalities had budget problems, here’s something to make you feel worse.  As bad as their budgets are, they’re even worse.  Because they’re cooking the books (see Rhode Island Pension Problem Larger Than Reported posted on Mercatus Center at George Mason University).

  • Rhode Island estimates the unfunded liability for municipal and state plans is $9.3 billion, while Mercatus researchers calculate it as closer to $18 billion.
  • How did they reach this number? The researchers argue that the huge difference in estimates is based on inaccurate accounting. In fact, financial markets and economists would calculate pension liabilities based on their relative risk. Currently, Rhode Island calculates their liabilities based on the expected return on investment of the pension assets.
  • Using the researchers’ revenue index, 17 of the 39 Rhode Island municipal governments are in the danger zone—their unfunded pension liabilities exceed revenues.

Keep this in mind whenever there is a millage to prevent the layoff of cops and firefighters.

The problem is that cops and firefighters aren’t too expensive.  It’s the pensions of the public sector that is making these municipalities go broke.  But it’s hard to get people to whistle a happy tune and pay more taxes so others can retire comfortably.  So they always put the fear of God into the voters.  “There will be a cop-less anarchy unless you approve this millage.  And in the bloodbath that will follow there will be no paramedics to save you.  Unless you approve this millage.”

A little more appealing than “pay more in taxes so Bob can have a better retirement that you.”

Just look at Rhode Island.  Smallest state in the union.  And they have an unfunded liability of $18 billion.  Assuming they have a larger funded part of their pension plans, the smallest state in the union has one helluva public sector pension obligation.  Which just goes to tell you that the public sector has grown too bloated.  And needs to be made less bloated.

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