CORRECTION: I’ve been informed that the author of the study below failed to include local revenue in calculating the underfunding of the PERS contributions. Once local tax revenues are added, the 40 percent required tax revenue drops to 22 percent. Still in the top 10 of states, but not No. 1.
According to an analysis published this week by the Hoover Institution, Nevada is the worst in the nation by far in failing to adequately fund its state and local government public employee pensions.
The study reports that Nevada contributed 15.9 percent of its own revenues to pensions in 2014, but under a risk-neutral approach to balance the pension budget Nevada would have had to contribute 39.5 percent of revenues, more than twice its actual contribution.
Nationally, the study by Joshua Rauh found state and local government pension systems are underwater by $3.4 trillion. It says that in order to prevent unfunded liabilites from rising governments would need to contribute 17.5 percent of their budgets to pensions instead of the 7.3 percent currently being contributed.
“Even contributions of this magnitude would not begin to pay down the trillions of dollars of unfunded legacy liabilities,” Rauh concludes.
Also out this month is a report by Stephen Eide, a senior fellow at the Manhattan Institute, which states that state and local public employee pension costs, according to Census Bureau data, grew 175.6 percent since 2002, a period during which state and local general revenues grew by only 59.7 percent.
“’Pension reform,’ by most all definitions, would do little in the short term to reduce pension-related volatility,” Eide concludes. “Even if all 19 million state and local employees were enrolled next year in a defined-contribution plan — a change considered political anathema even in many red states — pension debt would remain. States’ and localities’ most immediate need is a far more conservative approach to funding pension promises. But that would require increasing contributions beyond the current actuarially recommended amount, which is already too burdensome for most governments.”
A bill in the 2015 Nevada Legislature to reform public employee pensions was put off till next session, by when the unfunded liability will have grown even higher. The bill would have maintained a smaller defined benefit along with a defined contribution plan that would be similar to a 401(k) type plan used in the private sector, and would have began trimming the pension plan’s $40 billion unfunded liability.
(Hint: Look for a newspaper editorial to be posted here on this topic by the end of the week. It was written days before these reports came out but reaches the same conclusion.)