The Post's lead editorial on Detroit's bankruptcy highlighted the role of pensions in the city's finances. It warned readers that the problem of large unfunded pensions is common, telling readers:
"A new survey by scholars at Boston College finds that state and local pension plans have $3.8 trillion in unfunded liabilities, even assuming strong rates of return."
Got that? $3.8 TRILLION in unfunded liabilities! Let's see, I've $26.43 in my pockets, how does that compare? [See correction note -- I was far too kind to the Post here.]
Okay, this is exactly the sort of irresponsible budget reporting that I wrote about yesterday. How many Post readers have any basis for assessing this $3.8 trillion unfunded liability figure?
It's not hard to put this number in a context that would make it meaningful to readers. First, it is important to note that this estimate is over a 30-year period, the normal planning period for public pensions. It is also worth noting that the estimate is not based on an assumption of "strong rates of return." Rather, the estimate assumes rates of return that are consistent with growth projections from the Congressional Budget Office and other forecasters.
If the Post wanted to make this number meaningful, the obvious point of reference would be projected GDP over this 30-year period. The discounted value of GDP over the next 30 years is roughly $447 trillion, which means that the estimated shortfall is a bit less than 0.9 percent of GDP. That's hardly trivial, but not obviously a crushing burden either. Furthermore, many state and local governments are already contributing at rates that are consistent with filling this gap, meaning that no additional commitment of public funds will be needed to fill the shortfall, current levels of taxation are adequate.
The Post would have provided this information if the point was to inform readers. But that obviously was not the paper's point. The Post's point in this editorial was to scare readers to advance its agenda for cutting public pensions.
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