In a blog post earlier this week, I noted the emergence of a new website that offers both conventionally reported public pension liabilities, as well as liabilities calculated on a “market” basis. Joe Nation, at Stanford, has built a “Pension Tracker.” It shows the actuarially computed pension liabilities that California and its municipalities report, based on new accounting standards that finally direct them to be reported on government balance sheets.
The “Pension Tracker” also includes alternative measures for these liabilities. He calls it the “market basis,” which relies on discount rates drawn from U.S. Treasury securities. These rates are currently much lower than the rates of investment return state and local pension fund managers expect, which in turn are used to discount future pension obligation to their “present” reported values.
The way the math works, the higher the discount rate, the lower the present value. And for many cities in California, the differences are pretty dramatic.
Take Fresno, for example. A recent article highlighted how relatively well-funded the city’s pensions apparently are, as they are among a small minority that are reported to have a surplus.
Now, take a peek at what the Pension Tracker reports for the city of Fresno.
On the one hand, on its reported actuarial basis, Fresno sports a funded ratio of 105%.
On the other hand, the Pension Tracker reports a “market funded ratio” of just 65%. Its “unfunded market liability” runs to $1.1 billion. That’s not an asset, it’s a liability.
The City of Fresno may be relatively well-funded, compared to many state and local governments. Sadly, that may make life all the more depressing. If Fresno's pension plan is really $1.1 billion in the hole, and it is in relatively good shape, where does that leave the rest of America?
It all depends on how you count.