This editorial will appear in Wednesday’s edition.
Round about the time that state legislatures hope to emerge from their recession-fueled budget crises, another wallet-socking wallop could await them.
That’s the conclusion of a recent study by the Pew Center on the States, which has been issuing increasingly urgent warnings over the last couple of years about the long-term costs of public sector retirement benefits.
In 2007, the center estimated that states had committed to collectively spend $2.73 trillion on pensions, heath care and other retirement benefits over the next 30 years.
Now the center is back to warn that the liability has grown to $3.35 trillion – and that states are falling far short of socking away enough money to meet their obligations.
Pew estimates the gap between what states have promised and what they have on hand is at least $1 trillion. The real number is likely higher, considering the center’s latest report did not fully account for investment losses in late 2008.
The shortfalls threaten to blow big holes in state budgets at a time when they are least able to compensate.
The Pew Center generally gave Washington good marks, although that grade is somewhat misleading. The sum of the state’s pension obligations matches the sum of its contributions. But that’s like saying a neighborhood’s income matches its collective bills. Just try convincing the guy across the street to make your house payment.
Washington’s pension programs are in a similar situation. They have enough money in the aggregate, but aggregates don’t count. The state’s newer retirement plans have plenty of cash on hand while the unfunded liability in two of the state’s oldest pensions is $5.9 billion and growing.
Lawmakers have been falling short in their promises to make plug the gap. In 1989, legislators committed to making up the difference by 2024. Last year, they rejiggered that plan to help squeeze $429 million in savings from pensions. Lawmakers bought down their immediate obligation in exchange for a higher and longer repayment schedule.
It wasn’t the first time. Even before the Great Recession hit, state lawmakers were shorting pension payments. The Pew Center report dinged Washington for contributing just 37 percent of what the pension system needed over the preceding five years. Only one other state made less effort to keep its pensions whole.
The Washington state actuary’s office warned last fall that the state’s oldest pension plans could run out of money in 2015 unless the Legislature doubles its contribution in the budget cycle that begins next year.
Finding the money won’t be easy, but lawmakers have little choice. If they don’t heed the advice, the state could end up paying benefits out of pocket – an approach that would prove a huge drain on the general fund and the critical services it supports.
Washington’s day of reckoning is nearly at hand.