Josh Barro and Stuart Buck have produced a good backgrounder on the status of public pension funds for teachers on behalf of the Manhattan Institute for Policy Research, a conservative, market-oriented think tank. Among their findings are that the shortfall between promised benefits and actual assets in the plans is almost $1 trillion, declines in investments account for less than a quarter of that amount, and no reasonably foreseeable increase in investments will make up the shortfall. Only two relatively small states, Montana and North Dakota, have no deficit in teacher pension funds to make up while California, the most populous state, has a deficit of nearly $100 billion. That’s a lot larger than the official deficit of $42 billion because states aren’t required to follow generally accepted accounting principles as you or I would be.
The reason for this development is obviously the willingness of state and local politicians to make extravagant promises about future benefits coupled with a complete lack of willingness to fund these promises, a perfect example of the Wimpy strategy of public policy.
His willingness to underfund or even raid teacher pension funds to finance his new programs is one of the several reasons I opposed now-impeached Illinois Governor Rod Blagojevich. Illinois’s problem may not be unique but it is certainly distinctive. The state constitution of Illinois prohibits the state from reducing public pension benefits. Article XIII, Section 5:
Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an
enforceable contractual relationship, the benefits of which shall not be diminished or impaired.
That’s been fully litigated (the pensions of state supreme court justices are paid from a state retirement system, too) so that in Illinois the only way to change it is to amend the constitution, politically very difficult particularly in a state in which both houses of the state legislature and the governor’s mansion are held by Democrats beholden to public employees’ unions.
The only likely solution to the problem is a tiered system in which current teachers remain under the defined benefit program now in force and future teachers are enrolled in something more like a defined contributions plan. We’re still going to need to cough up what we’ve promised to today’s teachers and, in the absence of the political will to raise the state income tax, that means that every other government program in the state will suffer.