I notice that the news media has found the issue of 'unfunded' pension obligations and the budget implications. I wondered how these pensions could be unfunded when the union members have been paying part of their incomes often for years. Only one public official interviewed last night actually came out and told the viewers how this happened. Basically the states' governors and high officials decided to postpone their scheduled payments hoping to catch up at a later date. Later has arrived and they are still behind with no hope, given the sorry state of the economy, of catching up. I have seen news accounts of such measures in Illinois for the last five or six years every time it came time to balance that budget and postponing the pension payments was a great way to provide the illusion of a balanced budget. Some states have borrowed from the Federal government to pay some of what is owed to the pension plans and now those loans have to be repaid as well. I would call this fraud but I doubt anyone with any real power will nor will the perpetrators of this rip-off be held accountable to the people they have defrauded.
Then, however, I had another thought. I wondered where that pension money has been held. Is it put into treasury bills, municipal or state bonds, or some other investment? Everyone knows what happened to the 401ks and other such instruments private pension funds used. Some may have regained their former value but many have not. And I wonder if they are seeing a problem akin to the one facing Social Security. Back in the 1980s, Alan Greenspan and others in the Reagan administration 'reformed' social security. Seeing the wave of baby-boomers coming in beginning early this century they increased the withholding to 'pre-pay' for the benefits. But those excess funds had to be held in treasury bills to be cashed in when needed. This year, for the first time ever, Social Security is scheduled to pay out more than it will get in withholding and will have to tap the $2.5 billion in treasuries to make up the shortfall. Problem--whenever anyone wants to cash in treasury bills the government has to come up with the cash and now that means either getting the cash from the general revenue or borrowing it. Social Security doesn't have a problem of an 'unfunded' liability; the government has a cash flow problem some want to cure on the backs of the people who are supposed to receive the benefits. Getting back to the states and their 'unfunded' pension obligations--they definitely have one problem in that they have (criminally, in my mind) failed to make the payments they were obligated to make into the pension funds. But they may have another problem which has to date flown under the radar: if those pension funds are held in treasury bills or municipal/state bonds will the states and local governments be able to convert those instruments into cash when they are needed? The real question nagging at the back of my mind is whether the current attack on public unions and the demand that they give back pension and other benefits only the first of a series of attacks?
I found this National Employment Law Project study by way of HuffingtonPost this morning. It explains why this doesn't really feel much like a recovery in spite of the NBER declaration that the Great Recession ended in June of 2009. It puts some numbers to the impression I had that we lost more high wage jobs during the recession and have gained, mostly, a paucity of low wage jobs back during this 'recovery.'