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NCPERS Response to "COVID-19 will turn the state pension problem into a fiscal crisis"


States have fiscal problems in good times and bad, so to heap these problems on the doorstep of public pensions is unwise and unfair. As a former executive director of National Governors Association, Professor Scheppach surely knows that allocating and implementing adequate and equitable funding for public education, health care, infrastructure—or for any public service for that matter—is one of the most vexing issues any state faces. Spending decisions are often highly politicized; scapegoats are sought when the numbers don't add up to the liking of politicians who want to fund their pet projects.


States have fiscal problems in good times and bad, so to heap these problems on the doorstep of public pensions is unwise and unfair. As a former executive director of National Governors Association, Professor Scheppach surely knows that allocating and implementing adequate and equitable funding for public education, health care, infrastructure—or for any public service for that matter—is one of the most vexing issues any state faces. Spending decisions are often highly politicized; scapegoats are sought when the numbers don't add up to the liking of politicians who want to fund their pet projects.
 
Pensions, by their very nature, are a long-term proposition for state and local governments. The model is that salary contributions are collected from employees over decades, with governments chipping in their share and professional advisers investing the proceeds to achieve desired results. Pension funding thrives on such steadiness, so when state and local government renege on their funding commitments, shortfalls can develop. The answer isn't to get rid of pensions; the answer is for state and local governments to honor their commitments on a steady basis instead of behaving like deadbeat dads.
 
Pensions of public employees have a fairly small claim on state and local economic resources. According to an analysis of U.S. Census Bureau data by the National Association of State Retirement Administrators, contributions made by state and local governments to pension trust funds account for 4.7 percent of direct general spending.[1]
 
And Professor Scheppach's warnings ignore the fact that when pension funds flow into communities, they have a positive effect and act as an economic stabilizer during bad economic times, like the times we are currently in. Our analysis shows that public pensions are net revenue positive for state and local governments. Without the impact of public pensions, taxpayers would have to pay more to receive the same level of services.
 
Recent studies by researchers from Federal Reserve Board of Governors, Bank of England, and Brookings Institution show that from a fiscal perspective, public pensions are stable and can be sustained over the long haul with few if any modifications. As long as pension liabilities are not rising faster than GDP, they are stable and sustainable. Our own analysis shows that in the U.S. as a whole, pension liabilities have been rising at less than the rate of GDP growth.
 
The real problem, which Professor Scheppach sidesteps, is the mismatch between the state and local revenue structures and economic growth. That's what needs to be fixed. Public pensions have been around for decades and have navigated economic ups and downs by adjusting their portfolios and managing risk.
 
Respectfully,
Hank H. Kim
Executive Director and Counsel
National Conference on Public Employee Retirement Systems
Washington, D.C.
[1] NASRA Issue Brief, December 2019.

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