Chaffetz: No Bailouts for States’ $4 Trillion Problem

Mar 14, 2013

Washington, D.C. – Today, Congressman Jason Chaffetz introduced H.Res. 117, legislation that will declare Congress’s opposition to federal bailouts of state and local government employee pension plans. In 2012, state and local government employee pension funds reported unfunded liabilities that equal more than $4 trillion. Identical legislation (H.Res 23) was introduced during the 112th Congress.

“The federal government is in no position to bail out state and local governments,” said Chaffetz. “With more than 16% of the total federal budget already going directly to state and local governments, the federal government can’t afford to fix this problem. Too many states have been reckless and overly generous with their pension plans, which will undoubtedly result in them leaning on the federal government to bail them out.”

According to the Republican staff on the Joint Economic Committee, the way pension systems are dealt with can vary from state to state. For example, the Illinois pension system has more than 70% of its liabilities unfunded. North Carolina's pension system, on the other hand, has unfunded liabilities of 37%.

“Many states, including Utah, have been fiscally responsible at managing and reforming their government employee pensions. Congress should not expect federal taxpayers to rescue irresponsible governments from the consequences of their poor pension decisions,” said Chaffetz.

Even with financial challenges, state and local government employment has grown 7% since 2000, while private sector employment has only increased by less than 3%. Not only has the private sector become productive over time, it continues to move away from defined benefit plans and towards defined contribution plans which do not have unfunded liabilities.

In 2013 the federal government will borrow 25% of what it spends. Over half of the $11.8 trillion debt owed to the public is owned by foreign creditors and doesn’t include the cost of unfunded liabilities. Social Security’s unfunded liabilities in 2012, which do not show up on the government’s balance sheet, are $8.6 trillion over 75 years and $20.5 trillion over the infinite horizon.

“Expecting a heavily indebted federal government to bail out state and local governments is no solution – it simply compounds the problem,” said Chaffetz. “We can’t keep looking to the federal government to temporarily fix problems – we need to find solutions.”

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