VIDEO: ALEC on Conservative Commandos Radio/TV: Average American Family is on the Hook for $100K

The problem with unfunded liabilities is someday they must be funded. That's just how those things work.

Thomas Savidge, ALEC Research Manager of the Center for State Fiscal Reform at ALEC, was a featured guest last week on Conservative Commandos Radio/TV. Savidge shared with host George Landrith the unhappy news that the average American family is on the hook for $100,000 in unfunded state pension liabilities. The data comes from the ALEC 6th Annual edition of Unaccountable and Unaffordable, a report on state pension fund liabilities.  Below are highlights from the conversation.

George Landreth: Welcome to Conservative Commandos. Today we want to talk with Thomas Savidge of the American Legislative Exchange Council (ALEC) about his group’s recent report on unfunded public pensions. And I think that’s a worthy conversation because as I understand it, there’s this tremendous debt that’s built up there. We have a lot of bad economic news. We’ve got high inflation. We’ve got shortages. You’ve got some people suggest that we’re heading into a recession. And the funny thing is, people aren’t really talking about this huge liability in the form of unfunded state pensions. Does this even include the national debt?

 Thomas Savidge: No. The national debt does not include state and local public pension liabilities, which as my co-authors and I found out in writing the most recent edition of Unaccountable and Unaffordable, exceeds $8.2 trillion.

George Landrith: Wow. 8.2 trillion. That’s a very, very big number. The human mind can’t really picture a trillion of something much less 8.2 trillion. Let’s try to make that a concrete number that our listeners might understand.  For example, for the average American if we were to say here’s your share, of that 8.2 trillion, what would it be?

Thomas Savidge: Right around $25,000 per person.  One-hundred thousand dollars for a family of four.

George Landrith: Wow. So that’s something I think people can appreciate and understand. The problem with unfunded liabilities is someday they must be funded. That’s just how those things work. Maybe you can talk to us a little about how we got here, because $8.2 trillion, seems like an awful lot of money. And how do you get to a point where you’re that deep in the hole?

Thomas Savidge: It goes back about 20 years ago when some of the states even had assets to spare. A pension fund should be at any given time 100 percent funded. But today, Wisconsin is the best funded pension system in the nation and they’re at only in the ballpark of 70 percent funded.  Pension assets were originally invested in municipal bonds, U.S. Treasury notes, generally low risk assets, but as the yields on Treasury notes and municipal bonds, slowly dwindled over time, pension fund managers decided to chase returns in riskier assets. They started investing in stocks and trying to make up for those lost returns that they weren’t getting U.S. Treasury notes, which, 30 years ago, you could safely assume you were going to get double digit returns on any sort of treasury bonds.

And at the same time, these funds weren’t properly funding, making the necessary annual contributions. And we also talked about this a little bit in the report. But, you know, there’s also been some politically motivated investing which has put a lot of pension funds in danger. California is, you know, is Exhibit A of that, where they allowed politics to be the primary goal of investing. And they have missed out on billions of dollars in forgone investment returns, leaving money on the table.

George Landrith: Saying we don’t want to invest the pension funds in something that was maybe produced by slave labor, you could go okay, I kind of understand that. But I don’t think that is same as scoring investments based on a carbon footprint. And is that part of the problem?  They’re basically divesting from oil and gas pipelines in favor of windmills and solar panels?

Thomas Savidge: Yes. To take on California a little bit. The University of California and California State University System have fully committed to divesting from all fossil fuels. There’s currently a bill in the in the legislature in Sacramento that would totally divest the California Public Employees Retirement System and the California State Teachers Retirement System, two of the nation’s largest pension funds, from fossil fuels.