Honest-to-goodness pension fix

This leaves the systems with just 40 percent of funding they should have currently, well below the 80 percent generally deemed healthy for public systems.

Good government groups and editorial boards lamented the Legislature’s failure to pass yet another proposal to reduce that ginormous obligation – this time cutting almost $30 billion in benefits earned by current workers and retirees. 

But rather than being dismayed, folks should be relieved.

The proposal that failed to pass – like every other proposal – focused its solution on benefit cuts and failed to deal with its true cause. 

Three factors contribute to the creation of this unfunded liability.

The first two are items inherent to pension systems themselves, like benefit levels, salary increases and actuarial assumptions; and investment losses suffered during the Great Recession.

If those were the only factors creating the unfunded liability, the systems would be around 70 percent funded today, meaning no crisis.

The vast majority of unfunded liability is made up of the third contributing factor: debt.

For more than 40 years, the state used the pension systems like a credit card, borrowing against what it owed them to cover the cost of providing current services, effectively allowing constituents to consume public services without having to pay the full cost thereof in taxes. 

This irresponsible fiscal practice became such a crutch that it was codified into law in 1994 (P.A. 88-0593). That act implemented such aggressive borrowing against pension contributions to fund services that it grew the unfunded liability more than 350 percent from 1995 to 2010 – by design.

Worse, the repayment schedule it created was so back-loaded it resembles a ski slope, with payments jumping at annual rates that no fiscal system could accommodate.

This year, the total pension payment is $5.1 billion – more than $3.5 billion of debt service. By 2045, that annual payment is scheduled to exceed $17 billion, all growth being debt service.