WASHINGTON — On the eve of congressional hearings examining whether unfunded pension liabilities could trigger severe fiscal stress for state and local governments, a coalition of 10 groups representing state and local entities said public pensions are not in crisis and are not seeking federal assistance.
The National Conference of State Legislatures, the Government Finance Officers Association, the National Association of State Retirement Administrators, and other groups issued a fact sheet Tuesday, seeking to counter a mounting chorus on Capitol Hill calling for pension reform.
“One-size-fits-all federal regulation is neither needed nor warranted and would only inhibit recovery efforts already underway at the state and local level,” they said.
According to the groups, public pensions are not beset by crisis for several reasons. State and local pensions are not paid out of general operating revenue, but rather out of funds reserved in trust from contributions by actively employed public employees.
Most retirement systems have substantial assets — an estimated $2.7 trillion — set aside in pension trusts for current and future retirees. And contrary to some perceptions, pension payments account for a relatively small portion — roughly 3% — of state and local budgets, they said.
In addition, a majority of states have already instituted steps, on their own initiative, to secure pension plans for the long term, with measures ranging from benefit-level changes to increasing employee contributions — which, together with investment returns, generate the majority of fund revenues, according to the groups. Typically, public employees contribute 5% to 10% of their wages to their pensions, a rate many state and local governments have recently increased.
Moreover, with more than $175 billion in annual benefit distributions, public-sector pensions stimulate local economies across the country, annually generating over $29 billion in federal tax revenue and more than $21 billion in state and local tax revenue.
Still, with several states facing budget gaps, some Republicans, including former House Speaker Newt Gingrich, have touted the state-bankruptcy option as a means of staving off federal bailouts and reducing the burden of unfunded pension debt.
Two House subcommittees have scheduled hearings on the state fiscal crisis: the Oversight and Government Reform Committee’s TARP and financial services panel, slated for Wednesday morning, and the Judiciary Committee’s panel on courts, commercial and administrative law, set for Monday. Though House Majority Leader Eric Cantor has signaled his opposition to state-bankruptcy legislation, Senate Republicans have been exploring bankruptcy legislation.
Several House Republicans, Reps. Darrell Issa and Devin Nunes from California and Paul Ryan from Wisconsin, are expected to re-introduce a bill, originally floated in December, requiring enhanced disclosure of state pension funding.
The bill would have prohibited states and localities from issuing tax-exempt bonds or receiving federal subsidies for taxable municipal bonds if they did not file annual pension plan reports with the Treasury Department.
Meanwhile, some lawmakers contend pension reform is necessary, including Rep. Mike Quigley, the ranking Democrat on the TARP and financial services panel, said in an interview on Monday that pension reform would be the “middle ground” between two extremes — federal bailouts and doing nothing.
For some observers, though, the clamor for bankruptcy protection is a distraction from budgetary challenges which, while significant, state officials and legislators have long dealt with through time-tested means of raising taxes and paring spending.
“States don’t need it,” said Michael Bird, federal affairs counsel for the National Conference of State Legislatures, a bipartisan research organization. “I don’t think anyone is feeling the 'pressure’ of going under and needing a bailout from the federal government.”
Still, with two hearings on the upcoming calendar and congressmen from both parties calling for reform, state and local government groups are realistic.
“This isn’t going away,” Bird said. “Our inclination is to head off as much as we possibly can.”