There are many policies floating around to reform the muck that is municipal finance these days. A group of U.S. representatives from California are pushing a bill in Congress that would require states and cities to disclose the “true cost” of their pension plans, and whether they can pay those costs. California, of course, is home to raging debate over whether bankrupt cities like Stockton can continue to make pension obligation payments while defaulting on payments to other creditors. Paul Ryan (R-Wisconsin, former vice-presidential candidate) is also co-sponsoring the bill.
“The key to addressing this problem is shining a light on the financial health of pension systems and making clear that federal taxpayers will not pick up the bill for reckless mismanagement,” said Mr. Issa, whose district includes prosperous communities in San Diego County, which has had pension trouble, and Orange County, which declared bankruptcy in 1994 after its aggressive investments soured.
Orange County, of course, did not collapse because of pension agreements but because of overzealous entrepreneurial activities. And San Diego can be seen as many different governance failures, including rampant anti-tax sentiment, not just a pensions problem. The real debate, however, is over how governments present pension liabilities to potential investors:
The new bill would not use the tax exemption so much to narrow the federal deficit as to force municipalities into giving the world an unvarnished look at their pension plans. Until now, the accounting rules have permitted governments to factor in actuarial assumptions and smoothing techniques that greatly lowballed the benefits’ cost.
A similar bill failed in 2011, but it’s unclear what its chances are now. And it may matter less whether this bill passes than how ratings agencies calculate pension liabilities. The missing part of this equation, of course, is the cost of other liabilities: such as property tax exemptions to private companies, state corporate tax credits, and other liabilities that don’t show up as direct expenditures, and often escape being discussed as expenditures at all.