“Today, public employee pensions are operating in the dark without meaningful transparency requirements and with little or no accountability to beneficiaries or the people paying the bills – namely the taxpayer. A powerful case was made today for action by Congress. I believe the Public Employee Pension Transparency Act represents the best course of action,” said Rep. Devin Nunes.
During the hearing, Colorado State Treasurer Walker Stapleton testified that accounting standards currently used by state and local pensions are akin to “the Wild West” and that H.R. 567 was needed for taxpayers, pension holders, and policy makers to understand the true debt associated with public pension plans. Stapleton went on to equate current practices as akin to gambling with the financial welfare of future generations.
Josh Barro of the Manhattan Institute for Policy Research testified that today, “reviewing a public pension fund’s financial report does not necessarily make it possible to answer basic questions, such as: how much do we owe? How much do the pension benefits we provide cost? And how can we expect pension contributions to change over the next several years?”
Although some actuaries, public pension plan managers, and government employee unions oppose transparency, increasing objective evidence is becoming difficult to explain away. The City of San Francisco, for example, is now spending $357 million to fund public pensions. Over the next two years, payments will rise to $800 million. These enormous increases shock local and state budgets because of the unrealistic and misleading accounting standards currently in use. They also can result in sudden and drastic tax increases or reductions in services. Testimony from Barro underscored this point.
Public pension plan debt is estimated by independent analysts and academic researchers to range from $660 billion to more than $3 trillion. In some cases, jurisdictions are using bonding authority to borrow money in order to make contributions to their public pension plans or to make high risk investments.
“There is near unanimity among financial economists that public pension accounting reforms are needed. The few who want to keep the public in the dark either don’t understand the reforms I propose or suffer from a lack of objectivity. No compelling arguments against the bill were made during today’s hearing,” said Nunes.
A recent Congressional Budget Office (CBO) report supported the conclusions and testimony made by the majority of Ways and Means panel today. According to CBO, fair valuation (such as the reforms included in the Nunes bill) offers a more complete picture and transparent measure of the cost of pension obligations. (download the CBO report)