A Pew study finds a $1 trillion gap in state obligations for pensions and health benefits of government workers. Rather than a federal bailout, many states need to follow the reforms of more frugal states.
Taxpayers often assume state governments must budget in the black each year while Washington can wallow in red ink, printing money and selling debt to foreigners.
Not quite true, apparently, when it comes to the budgeting of retirement benefits for state workers.
Collectively, state governments are at least $1 trillion in the hole for paying out future pensions and healthcare benefits for retirees. That’s the conclusion of a study by a Washington think tank, the Pew Center on the States, which relied on figures only before the recent recession really hit. “What we found was truly troubling,” said Susan K. Urahn, managing director for the Pew Center. The gap may be even higher now.
A trillion dollars is a huge burden on future generations to pay for today’s public employees. And it helps explain why state officials demanded a large chunk of the 2009 economic stimulus package and why many states want the federal government to take over healthcare. California even talks of a federal bailout for its debts, similar to that given Wall Street, mortgage giants Fannie Mae and Freddie Mac, and GM and Chrysler.
The basic problem is that many states have overpromised and underinvested on all their retirement benefits. State and local governments pay 45 percent more in salary and benefits per hour worked than private employers do while also allowing much earlier retirement. Most of that state largess is in benefits.