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Chapter One: Are State and Local Government Budgets Balanced?


Published March 5, 2020

Many people believe that state and local governments run balanced budgets. But the pension obligations they have to their workers and the inevitable financial shortfalls they will face are not included in their budgets. What may look like responsible financial planning is disguised by hidden pension debt.

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Video Recorded: August 22, 2019.

Discussion Questions:

  1. What motivates so many state and local governments to underfund their pensions?
  2. Why are state and local governments still using traditional defined-benefit pensions when the private sector has moved toward defined-contribution plans?

Additional Resources:

  • Watch the five-part animated video series based on Josh Rauh’s research on the vast underestimation of public pension liability to gain insight into the hidden debts the next generation will face, available here
  • In “Hidden Debt, Hidden Deficits: 2017 Edition,” Joshua D. Rauh details the issues surrounding the pension system and the role of governments in increasing liabilities and deficits by means of their pension system. Available here.
  • In “A Tale of Six Cities: Underfunded Retiree Health Care,” Rauh and Pozen analyze the retiree health-care systems of six American cities: Boston, Minneapolis, Pittsburgh, San Francisco, San Antonia, and Tampa. They also outline a broad variety of reasonable measures that cities could adopt to materially reduce their long-term OPEB liabilities. Available here.
  • “The Public Pension Crisis” is an essay excerpted from a Hoover report by Joshua Rauh, “Hidden Debt, Hidden Deficits: How Pension Promises Are Consuming State and Local Budgets.” Available here.
  • In “Pension Fund Board Composition and Investment Performance: Evidence from Private Equity,” Rauh, along with Aleksandar Andonov and Yael V. Hochberg, examines the governance of public pension funds and its relationship to investment performance. Available here.
  • In “A Few Trillion Short,” Rauh reveals the government debt owed to public employees, available here.