Six Terrifying Graphs That Summarize America's Public Pension Crisis

Tyler Durden's picture

A new report from the Hoover Institution written by Senior Fellow Joshua Rauh and entitled "Hidden Debt, Hidden Deficits: How Pension Promises Are Consuming State And Local Budgets," does a masterful job illustrating the true severity of America's public pension crisis, a topic to which we've dedicated a substantial amount of time over the past couple of years. 

As part of the study, Rauh reviewed, in detail, 649 state, county and local pension systems in the United States and ranked them based on funding status and impact on local budgets.  What he found was a hidden taxpayer debt burden, in the form of underfunded pensions liabilities, totaling over $3.8 trillion.  Of course, as we've pointed out multiple times as well (see "An Unsolvable Math Problem: Public Pensions Are Underfunded By As Much As $8 Trillion"), Rauh argues that that $3.8 trillion taxpayer obligation is actually much larger if you apply some "common sense" math as opposed to "pension math."

As of fiscal year 2015, the latest year for which complete accounts are available for all cities and states, governments reported unfunded liabilities of $1.378 trillion under recently implemented governmental accounting standards. However, we calculate using market valuation techniques that the true unfunded liability owed to workers based on their current service and salaries is $3.846 trillion. These calculations reflect the fact that accrued pension promises are a form of government debt with strong rights. These unfunded liabilities represent an increase of $434 billion over 2014, as realized asset returns fell far short of their targets.


Governmental accounting standards for pensions underwent some changes in 2014 and 2015 with the implementation of Governmental Accounting Standards Board (GASB) statements 67 and 68, procedures which require state and local governments to report on the assets and liabilities of their systems with a greater degree of harmonization. However, these standards still preserved the basic flaw in governmental pension accounting: the fallacy that liabilities can be measured by choosing an expected return on plan assets. This procedure uses as inputs the forecasts of investment returns on fundamentally risky assets and ignores the risk necessary to target hoped-for returns.


Specifically, the liability-weighted average expected return chosen by systems in 2015 was 7.6 percent. A 7.6 percent expected return implies that state and city governments are expecting the value of the money they invest today to double approximately every 9.5 years. That means that a typical government would view a promise to make a worker a $100,000 payment in 2026 as “fully funded” even if it had set aside less than $50,000 in assets in 2016; a similar payment in 2036 would be viewed as “fully funded” with less than $25,000 in assets in 2016.

With that intro, here are the stats on the worst funded public pension plans by state, county and city.

At the state level, it should come as little surprise to our readers (see "Illinois Pension Funding Ratio Sinks To 37.6% As Unfunded Liabilities Surge To $130 Billion") that Illinois is at the very top of the list for the worst funded pension system in the country.


Meanwhile, the worst funded state pensions will continue to see their underfunded liabilities continue to grow as they would have to dedicate anywhere from 15%-25% of their entire revenue base just to maintain their current funding levels...which, of course, is not likely.


At the city level, again it should come as little surprise to our readers that Illinois was able to claim the top spot for worst State and City when it comes to pension liabilities.  Here are a couple of recent posts on Chicago's pension disaster:


Meanwhile, Chicago would have to spend nearly 45% of its annual budget on pension contributions just to avoid losing additional ground.


Finally, Illinois nearly completed the coveted state, county and city trifecta but was narrowly 'bested' by Wayne County, Michigan.


But when it comes to pension underfundings relative to county revenue sources, California clearly 'wins' the day with 10 of the worst 11 counties based in Cali.


Of course, as we've said many times before, these public pension problems can be ignored for a very long time as managers pursue the "kick the can down the road" strategy.  That said, eventually each and every one of them will face an actual funding crisis that can only be solved with actual cash rather than funky pension math.  When that day comes, people will look back and fondly reminisce about the "mild" recession of 2009.

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TruxtonSpangler's picture

June/July bond implosion coming

Croesus's picture

The Big Crash is coming, I can feel it.


Did anyone besides me just see a story about ESPN get posted, and then vanish a second later? "ESPN and the end of the sports bubble"...

Bigly's picture

Yes. In fact i posted to it and it said access denied.


Edit:  this happened to me once before. Maybe they pulled it to edit something, then repost 

secretargentman's picture

Terrifying? Hmmm. No matter how hard I try I can't seem to get terrified at a graph. Not even when they're in groups. Maybe I'm doing it wrong. 

Oliver Klozoff's picture

Something similar happened to me when I posted the link last fall to the newsweak "madame president" cover. The whole thread behind that also vanished.

Freddie's picture

F**k Shitcago, Cook County and Illinois!  Let em eat matzos.

That fat pig Bertha Lewis the Pres of ShitCago teachers union will get her cut and so will Raham and his fellow tribe members. 

newdoobie's picture

wheres the spanish flu when you need it

Shinebama's picture

Would love to get out of ShitCongo and leave that Jabba The Hut looking Lewis behind me. Hoping I can sell my condo before the market goes south after the automatic tax increases kick in starting in 2020.

phantom blot's picture

bond explosion? why june/july?

Observant's picture

Yes it is. I just upped my AK-47 ammo to 10,000 rounds a couple of weeks ago. Will go for 25,000 as soon as I can afford it.  "Cry Havoc and Let Slip the Dogs of War". Shakespeare.

itstippy's picture


25,000 rounds of rifle ammunition?

I'm got 8 cartridges left of a 20-round box of 30-30WIN that I bought 5 years ago.  4 deer in the freezer over that time, plus taking a target shot every year to blow the dust out of the barrel and make sure the sights are correct.  There is no need to "practice"; I use a 4X telescopic sight and hunt from a tree stand where the longest shot is maybe 30 yards.  Put the cross hairs just behind the front shoulder and squeeze the trigger; they go down and do not get back up.  

syzygysus's picture

Well, when a pack of 10 hungry bitcoin hodlers race up your street 6 days after the power goes out, you'll wish you had the AK and a few loaded magazines.

Nothings fiercer or dumber than a hungry hodler.

Madison's_Ghost's picture

News Flash:  "bitcoin hodlers" are also armed to the teeth. Its called a Hedge.

peippe's picture

maybe a spare bolt & barrel or two to go along with that bang-bang?

GUS100CORRINA's picture

Title: Six Terrifying Graphs That Simplistically Summarize America's Public Pension Crisis

My Response: The Public Pension systems are a GOD FORSAKEN MESS! I see a lot of California issues.

One conslusion could be reached from the data: DEMOCRAT = DISASTER

So much could be said about the subject of pensions, but why bother anymore???

JuliaS's picture

I live with assumption that I have no pension (despite losing a hefty portion of every paycheqe support govt promises). There are only 2 options awaiting for me when I hit retirement. Either I get paid in worthless money, or I won't get paid, period! Oh, and there is the 3rd likely option of me dying prior to hitting retirement. That's the one all governments are betting on.

Soylent Green Pension Plan.

Oliver Klozoff's picture

Should events transpire to allow me blessed retirement, I will be wealthy beyond imagination. The money? Nope, born poor and stayed that way.

Bigly's picture

No soup for you!

C'est dommage!

Iconoclast421's picture

The Fed will end up owning these unfunded liabilities.

YukonJake's picture

Perhaps I am reading it wrong, why in the hell is the Market value callout larger than the Stated value, but smaller than the stated in the graph?  I have no doubt that the pension system is imploding, but those two items in the right column don't seem to match AT ALL with the graphs they are meant to represent / specify.  

Help me out...  I am a reasonably intelligent human, but that seems like the colors are swapped or something.

Evan Wilson's picture

I think what they are saying is that the market value of the assets is much less than the stated value of the assets. Meaning the funds are worse off than are being reported since the assets are really worth less than what they are reported as. I asume that the assets are being valued on some kind of present value calculation that is using something like 8% as the expected rate of return over time, instead of a more realistic rate that would be lower than that.


Think of it this way. Asssume that the "stated present value" of an asset was $100 and growing 8% per year forever, so it should generate $8 in the current year but it is only generating $6, so it really is only worth $75 ( $6/.08 ). 


There are varioations that change based on the assumptions, but in general if the expected rate of return into the future is too high, the present value of the assets are too high.

Peacefulwarrior's picture

"it's all Bull$hit folks and most of it's bad for ya" George Carlin

Canary Paint's picture

Because the bars are the funding ratio, assets / liabilities, and not the dollar amounts in the column to the right. The column to the right gives a sense though of why the funding ratios, stated and market, are such.

Frozen's picture

I think by "Market Value" they are referring to the total liability, and the "Stated Value" as available funds

WinstonSmith1984's picture

No problem. Do a Venezuela and crank up the money presses. Problem solved overnight.

lasvegaspersona's picture

You mean...'When the bodies start piling up in the streets they will stop protesting Venezuela?...that Venezuela?

...seriously though what you suggest is what they will do. In the Weimar no pension went unpaid...right up to November 1923.

mrdenis's picture

 New Jersey has the problem solved they are giving the state lottery to the pensions in lieu of state payments into the fund ...I can only guess someday they will also be sending out lottery tickets in lieu of pension checks it ! 

Peacefulwarrior's picture

They'd be better off sending Cryptocurrency, at least the now and again of something other than your Johnson going parabolic is in your pocket everyday too

adanata's picture

...and the Fed said, zero interest rates...heh heh they wiped the drool from their chin.

jm's picture

All those bureaucrats will wake up and find that half-assing in a dead-end job for 20 twenty years or more doesn't pay off after all. Most only stayed in as long as they have for the pensions, rather than choose productive work. 

Taxpayers 1, public pensions 0

Offthebeach's picture

Hahaha.  Hacks...."waking up"......very funny

jm's picture

To the clear-eyed bastards who see through the BS... cheers <clinks glass>

DEMIZEN's picture

its a ponzi. if you are below 50 with less than 10 years of credit you will never see a dime, at the current rates of employment,  demographic structure, inflation and etc...


on the other side, do not underestimate the ability of. gov fucks to defend their priviliges and "fix" things willing to pay any price to stay on to of the game.  even when the streets will burn, they will still pump the money into their funds. legal, illegal and in the very end - gold bricks on the private planes and boats headed out of the country.


seen it many times.

are we there yet's picture

I want the great retirement plan that our politicians have.

Bigly's picture

I want the politicians to be ousted and get zero. As they were liabilites, not assets, they can OWE THE TAXPAYERS money, not the other way around.

Fuck all of them. Corrupt assholes, all

Twee Surgeon's picture

Yeah,the one that includes the Ebola innoculation?

Justin Case's picture

Time to invest in dog food mfg. Doctor Ballards has chunky stew in a gravy.  mmm yummy.

Bigly's picture

Do not buy HUNK OF BEEF, though ;)

Recalled and dangerous....

Justin Case's picture

Gettin as bad as human food are they? Animal food rarely has recalls and safer as it is.

Every year, Salmonella is estimated to cause one million foodborne illnesses in the United States, with 19,000 hospitalizations and 380 deaths.

Justin Case's picture

So we are fucked then?

Yup over the pickle barrel, dry mount.

lasvegaspersona's picture

...we should be fine...

though I wonder if anyone ever told them...'maybe we should use the average of the last 5 year returns instead of 7.5% assumed returns"...just wonderin'

Justin Case's picture

Collectivism a growing concern in the EU, US, UK, Canada. Time to move.

Able Ape's picture

Politicians don't give a FUCK, they get in, cut some deals on the side and then get OUT with a nice juicy pension and free health care for the rest of their lives.  With that type of package who seriously would give a FUCK about pensions?...