Federation of Connecticut Taxpayer Organizations

Why would politicians and union bosses oppose new rules encouraging better disclosure of our public pension crisis when actually those rules barely scratch the surface? Because even a little honesty is too much for them. They will have to confess they deceive taxpayers, bond buyers and public workers about accounting tricks that loot pensions. Any ray of light exposes them.

Merely take a look at two recent studies comparing the latest numbers with how they look under the new rules. They look bad.

For decades, politicians and government union bosses partied hearty running up a $4 trillion tab falsely balancing their budgets by tapping into pension money. They and their cronies still skim billions of dollars off the top through fees and what they refer to as �expenses.�

They want to keep draining that fat artery of the body politic, and new rules proposed by the Government Accounting Standards Board threaten their sweet thing. So they oppose change with the ferocity of vampires exposed to light.

What would be funny if millions of taxpayers and public workers were not at risk is the fact that these new accounting rules still let politicians continue deceiving us.

The studies on the impact of the new rules show that while they will tell us a little more about how dire the state and municipal pension crisis is, wiggle room remains.

One study just released by the Center for Retirement Research at Boston College, "How Would GASB Proposals Affect State and Local Pension Reporting?," ran calculations for 126 pensions under the proposed rules. The results are scary.

�Funded ratios,� the amount of money available to pay pension promises, will decline precipitously. �The bottom line is that the headline number will decline in 2010 � the latest year for which data are available � from 77 percent to 53 percent.�

That means somebody has to make up the difference, 47 cents for every dollar in pension benefits paid. Politicians just assume ignorant, docile taxpayers will roll over for crippling tax increases and service cuts. We always do, right?

But the bigger problem is no matter how bad these new accounting rules show things are, things actually are worse.

CRR admits, �The new GASB discounting proposal fails on a number of counts�.�

That failure, �makes the numbers even more difficult to interpret and difficult to adjust � makes comparisons across states and localities impossible � create(s) unnecessary confusion �� and ��not only represents a loss in analysts� ability to assess how close plan contributions are to those required to keep the system on track but also creates an escape valve that states could use� to keep running up a secret credit card bill future taxpayers never will be able to pay off.

In the other recent study, Robert Novy-Marx invoked a baseball legend in "Logical Implications of GASB�s Methodology for Valuing Pension Liabilities" �to show that GASB accounting is susceptible to the �Yogi Berra fallacy,�� by allowing politicians to deceptively slice and dice numbers.

�Yogi Berra famously once told a waitress, �You better cut the pizza in four pieces, because I'm not hungry enough to eat six.� The absurdity of this statement is self apparent. A pizza is a pizza. How it is cut has no impact on the extent to which it satisfies a hungry diner. The same is true for a particular set of assets and liabilities, a fact not reflected in the GASB methodology.�

Novy-Marx points out the tragedy looming for America when we find out no matter how politicians slice it, there isn�t going to be enough pension pizza to feed everybody:

�State and local government spending makes up one-eighth of the U.S. economy. Sub-national government entities employ one out of seven U.S. workers, and these workers generally participate in state-sponsored defined benefit (DB) pension plans. Many of these workers have no savings, and roughly 30 (percent), mostly public safety workers, are not enrolled in Social Security, meaning that these plans represent many public employees� sole source of post-retirement income.�

What is going to happen to them when the money runs out and taxpayers go broke? That's not some distant theoretical question like Social Security pretends to be. According to CRR, even under the best of scenarios, the national average �Run-Out Date� for state and municipal pensions is only 30 years from now. For the worst case, Kentucky, it�s in five years.

This is going to happen no matter how many so-called pension reforms states inflict on new workers.

Worse, according to Novy-Marx, is that the proposed accounting rules not only still allow politicians to lie about how big this debt really is, the rules actually encourage more risky investing and continued borrowing in secret.

That means every year hidden debt to state and municipal workers keeps getting bigger than the new rules would show. How big? �� GASB under estimates the true cost of state and local government workers by almost a hundred billion dollars a year.�

Even for politicians used to squandering other people�s money, that adds up over time to more than America ever can pay. Rank-and-file public employees are going to take a big hit.

Why state and municipal workers continue to cling to those who betray them is something behavioral psychologists will have to figure out some day.

What they should demand right now is even more stringent accounting standards that could shine a brighter light on how big that hit is going to be.

Only then can we force politicians to do something about it.

Frank Keegan is a national editor for The Franklin Center for Government and Public Integrity, watchdog.org and statehousenewsonline.com . Any disgusted public employee, journalist, activist organization or citizen watchdog who wants help exposing government waste, fraud and abuse may contact him at: frank.keegan@franklincenterhq.org

For a comprehensive primer on state and municipal government pensions, check Statebudgetsolutions.org and sunshinereview.org . And for an aggregation of news from around the country, check Pensiontsunami.com .

http://www.franklincenterhq.org/2884/commentary-even-dim-light-of-phony-numbers-reveals-certain-catastrophe-of-public-pension-crisis/

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