Pensions Troubles Getting Some Attention

08 Dec, 2010 by Warner Todd Huston

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Michael Corkery of the Wall Street Journal reports that congressional Republicans are finally paying a bit of attention to the coming pension bomb that is about to explode in nearly every state in the union, causing further damage to our economy and our state budgets. House Republicans are making moves to prevent bailouts of state pension funds.

Currently the federal government does not have too much influence over state pension funds. But with moves by some Democrats to change that so that the federal government can bailout their union supporters in the states, Republicans are looking to head off further federal involvement in the state’s floundering pension funds. (For more on Democrats trying to bailout state pensions see my earlier reports, here and here, among others.)

One of these moves is an attempt to force states to report more honestly on their pension problems before they are allowed to sell tax-free bonds.

The latest wrinkle: A bill introduced last week by three prominent House Republicans to deny states and localities the ability to sell tax-exempt bonds–the lifeblood for many governments–unless they report their pension-fund liabilities to the Treasury Department. The federal tax-free status of interest on municipal bonds helps generate demand for the bonds and lowers government borrowing costs.

This policy would force states to issue a truer snapshot of their pension troubles in order to sell bonds. Currently, many states use all sorts of shady accounting tricks to make pension troubles seem less worrisome. The new rules would “smoke the rats out of their holes,” according to bill sponsor Rep. Devin Nunes, a Republican from California.

Whether they want to get involved or not, if Republicans simply turn away from the issue it will give Democrats the momentum to implement a bailout of profligate states. The American taxpayer should not be forced to reward the overspending, bad leadership, and poor fund administration of public employee unions among the states. The GOP better make sure that such bailouts do not occur, even if that means millions of retirees lose their benefits altogether.