by Jonathan Ingram
Senior Policy Analyst
Last week, Sen. Jim DeMint, the ranking Senate Republican on the Joint Economic Committee, pledged opposition to any federal bailout of state pensions. He was joined at that news conference by our CEO John Tillman and other public policy experts who are urging Congress to block a federal bailout of state pension debt. As we've previously explained, a bailout of state pensions will punish responsible states and reward reckless ones.
A new report by the Joint Economic Committee, or JEC, provides even more evidence that the federal government should never bail out state pension debt. As long as the option is on the table, states will continue to avoid making the tough choices necessary to get their fiscal houses in order. Here are just a few of their findings:
- The multi-trillion dollar state debt crisis is already upon us. Across the nation, total state government debt now exceeds $4 trillion, mostly for pensions and retiree health benefits.
- States are already very reliant on federal funds. In 2011, federal aid to state and local governments totaled more than $600 billion. This represents nearly 30 percent of states' total revenues and 16.8 percent of all federal spending.
- State and local governments aren't setting aside the money needed to pay for generous pension benefits. Over the past five years, they have underpaid their actuarially required pension contributions by more than $50 billion.
As the JEC report makes clear, if the most reckless states go to Washington for a federal bailout, the burden will be borne largely by states with more fiscally sound pension systems and budgets. What's more, making states ever more dependent on federal aid will destroy federalism, turning states into mere subsidiaries of the federal government.
But talk of potential pension bailouts is already underfoot. In his fiscal year 2012 budget, Gov. Quinn said that "significant long-term improvements" to the state's pension systems would come from, among other things, "seeking a federal guarantee of the debt." Earlier this year, Rep. Hansen Clarke introduced a bill that sought half a billion dollars in federal loans to solve Detroit's financial crisis and underfunded pension program. And Californians will vote on Proposition 31 this November, which could shift potential state-level burdens caused by municipal bankruptcies onto taxpayers in other localities.
Until a federal bailout is completely off the table, state and local governments will continue to delay the structural spending reforms so critical to their long-term fiscal health.
To learn more about why a federal bailout of pensions is wrong for America, and how it could impact your state or county, visit NoPensionBailout.com.