Thursday, April 28, 2011

Unfunded & unsustainable: Ky's bloated public pension system

The Pew Center for the States has just released its annual snapshot on state pension and retiree health-care funding. It's not a pretty picture, especially for the Bluegrass State.

In his analysis of the numbers,David Cox, editorial page editor of the Paducah Sun (subscription required), noted today that not only does Kentucky have one of the highest percentages of unfunded employee retirement obligations in the nation, but that even a strong economic recovery isn't likely to solve the problem.

The problem: For every dollar Kentucky has obligated itself to pay retired state employees for pensions and health insurance, the commonwealth has set aside only 58 cents. Only Illinois (51 cents) and West Virginia (56 cents) are in worse shape.

How we got here: Kentucky's low ranking is "due in part to the state's high ration of state employees to population," Cox writes.

There are now 38 state employees for every 1,000 workers in the commonwealth.

Unacceptable excuses: Bureaucrats like to use "the recession excuse." Yet, as Cox notes, while the stock market decline diminished the value of pension funds, "the stock market has rebounded while the unfunded pension liability has continued to grow."

Besides, as Pew Center director Susan K. Urahn noted, "the states dug themselves a big hole before the recession ever hit." The recession simply made "a serious problem even worse," Urahn said.

Kentucky's pension system's unfunded liability has reached $34 billion, according to Lowell Reese, editor and publisher of Kentucky Roll Call and an expert on the state pension system,

The way out?: Cox suggests the commonwealth could start the long trek back toward being able to match their obligations by "scaling back on promises to new employees."


Anonymous said...

The private sector has to match! Why can't the public sector!?

Anonymous said...

These numbers are incredibly disheartening. Kentucky's officials are in denial about the real danger we are in with our unfunded liabilities. We are continuing to promise money we don't have. I don't know about you, but in my opinion, that's just plain and simple bad business. We need to get serious if the commonwealth is ever going to recover.

Anonymous said...

This is potentially deflationary. In order for businesses to continue, the money demand problem will have to be matched with some sort of outdoor or indoor relief to those affected.
This will probably blunt or even negate any attempts at quantitative easing, should the state attract federal dollars.
I guess we are going to have to get to work on drawing down more money--or we will have to barter amongst ourselves. Food will still have to be grown, goods will still have to be assembled, and shops will still have to sell.
And taxes will be scaled back because revenue will be constrained. We call that a death spiral if it accelerates. The best solution in the short term is to shift the unitary cost upwards, such as eliminating the penny altogether--just as we eliminated the mill.
Get rid of the debt ceiling, if we are in a fiat economy.