The Fiscal Crisis of State and Local Government Pension Systems

April 12, 2011

Tuesday, April 12 at 5:30 p.m.
Weil Town Hall
, 1st floor, Belfer Building, Corner of JFK and Eliot Streets

Joshua Rauh, Associate Professor of Finance, Kellogg School of Management, Northwestern University

Commentary by Greg Mennis, Assistant Secretary for Finance and Infrastructure, Massachusetts Executive Office for Administration and Finance, MPA ‘07

Fiscally strapped state and local governments have more than $3.5 trillion in unfunded pension liabilities, according to analyses presented in a series of papers by Rauh and Robert Novy-Marx. This figure is higher than what those entities have reported, they argue, because states and localities use flawed accounting procedures that misrepresent the value of pension liabilities by discounting at expected returns on assets. Many pension plans — including those run by the states of Louisiana, Illinois, New Jersey, and Connecticut and local pension plans in such cities as Chicago,  Cincinnati,  Jacksonville and St.  Paul — do not have assets in place to pay for already-promised benefits beyond 2020. Unless public pension systems are changed in fundamental ways, these looming problems could require substantial increases in taxes or large-scale cuts in public services.

Co-sponsored by the Rappaport Institute for Greater Boston, the Taubman Center for State and Local Government, and the Mossavar-Rahmani Center for Business and Government.