RockTheCapital.com (“RTC”) has reviewed the long-term pension crisis which currently sits at $70 billion in unfunded liabilities (funds the tax payers owe). This behemoth has already reduced our credit rating. Crippling debt will eventually impoverish the state. The three main drivers of this crisis are the underfunding of the state’s pension contribution, the underperforming of investments, and the unfunded increase in pension benefits.
This problem was an entirely man-made crisis because the pension scheme had a surplus as recently as 2001. But politicians used this surplus money to pad pension benefits for government workers, especially for themselves, in the belief that there would never be another economic downturn. This helped pay for other aitems in the budget, but dramatically increased the pension liability. This budget fix has made our debt less secure leading to a consistent downgrading of our credit rating.
Beginning with the economic downturn of 2001, the government and some school districts used this funding gap as an a strategy to stop fully funding pensions. This is like taking a payment holiday on your monthly credit card bill or mortgage payments. The Commonwealth stopped paying its required share into the pension pot, and the financial gap worsened with the 2008 recession.
However, public employees continued to pay their pension contributions.
The pension crisis is going to have significant costs. Either the taxpayers’ burden will be increased, or state programs like education and infrastructure will be slashed. The main reason for the constant delaying of a solution is that the people who benefit most from this are the politicians who increased their own personal pension payout by 25% more than the typical government employee. That means even though none of these benefits were paid for, there is a huge disincentive to fixing the problem because politicians would have to fix their own pensions.
RTC requested pension data this summer on the legislative class of 2015-2016. About two-dozen legislators are not listed because they have refused to take the pension. And many newly elected legislators have turned down their pensions as well. (They are listed in a separate pdf).
However, legislators don’t want to fund the $70 billion hole because they would either have to cut spending, increase taxes or implement a combination of fewer programs with higher taxes.
Enclosed please find the pension status for the class of 2015-2016 prior to the Cost of Living Adjustment implemented on December 1, 2016.
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