NCPERS: Bachrach’s proposal of federal intervention wrong for pensions

By Hank Kim

Where was Ed Bachrach’s outrage when state and local governments were willfully ignoring their legal obligations to fund pensions for their teachers, firefighters, police officers and other public servants? His call for federal intervention in the fiscal management of public pensions is a wrong-headed exercise in cherry-picking facts to suit one’s arguments (“State and Local Pensions Need National Attention,” Nov. 10,  2016).

Bachrach correctly notes that pension funding gaps vary widely from state to state and city to city, but he exaggerates the size and the immediacy of the shortfall. The gap is less than $1 trillion spread over 30 years, according to the 2015 Census of Governments. These costs equal 4 percent of expected state revenues over the same period. Bachrach wields the T-word — trillion — as a scary weapon but doesn’t bother to point out that beneficiaries can’t demand their pensions in a lump sum tomorrow. Time is on our side.

State and local governments made mistakes by relying excessively on regressive and volatile revenue schemes such as casinos, lotteries and “sin taxes,” and compounded the error by reneging on their pension funding commitment during an economic downturn. Bachrach’s solution — federal intervention to enable states and local governments to reduce promised pension benefits — is unfair to workers who faithfully made every required contribution and violates a host of constitutional, contractual and property-rights principles.

There is a better way. State and local governments can adopt more progressive, broad-based revenue systems with lower rates. Governments should stop giving away twice as much in economic development incentives as they have committed to spend on pensions. Pension checks are spent locally and domestically, unlike money given to corporations through tax loopholes and subsidies. Other solutions include using well-designed pension obligation bonds and improving risk management.

From Hank H. Kim, executive director and counsel, National Conference on Public Employee Retirement Systems, Washington, D.C.