In recent days, we’ve included links to two provocative essays in our “Morning Call” daily newsletter. One of them was to a “Policy Brief” from the Haas Institute For a Fair and Inclusive Society, by Tom Sgouros, titled “Funding Public Pensions: a Misguided Goal?” The other was to an article about this policy brief, by Ryan Cooper, “Public Pensions Are in Better Shape Than You Think,” published in The Week.
These articles sparked energetic responses from some of our readers, one of whom wrote them down. Here is what he said:
“Bill, I’ve read half of Tom Sgouros’ essay, and scratch my head over it. Aside from his attacking the accounting profession, my brain finds it impossible to accept that the life of governmental districts obligated to disburse defined benefit pension payments is ‘infinity.’ He lambasts GASB, stating that GASB Statement 68 is essentially a wild guess that grossly misstates governmental financial statements, and that these financials are better stated totally ignoring their pension liabilities. Yes, governments can assess taxes on their constituents, but refusing to recognize sound business principles, and choosing to ignore some of their material liabilities, is at best shameful.
Mr. Sgouros writes in his first 12 pages that he’s unconcerned with lack of substantial funding, but then comments on his page 13 that “… funded ratio of 80 percent to be sufficient …” As you and I have discussed, extremely few of these governmental defined benefit plans are fully funded, and many of them are sliding deeper and deeper into greater underfunded positions. The Village for which I serve as treasurer has slid from about 110% funding, when I joined this position over 25 years ago, to less than 68% funded currently, and sliding negatively. Depending on selection of discount rate, this underfunding may be grossly less than this level.
From a fiscally prudent perspective, these pension obligations are components of employees’ payroll, that should be fully funded, based on actuarial assumptions, in the respective employment year. If not fully funded, for each employment year, as has been the longtime negligent/fraudulent legislative decision-making process by our governing politicians locally and statewide here in Illinois, as well as by most of our other states and at our Federal level, the obligation moves to future years, and increases those future obligations. Our future generations are screwed, because they’re the ones required to fund their forefathers’ thievery from their plans.
I guess the end outcome, according to Mr. Sgouros, will be that this Ponzi practice can continue, ad infinitum, until some cataclysmic end event occurs, such as an atom bomb or massive meteor strikes the earth and obliterates civilization as we know it. When that happens, no one will be around to care.”
By Noel Hastalis