Governors Nationwide Fight to Tackle 'Pension Bomb'

(January 24, 2011) — To deal with escalating fiscal problems, governors nationwide are fighting to increase their efforts on pension reform in an attempt to reduce costs.

Already, the governors of New Jersey, California, Washington, Virginia, and Massachusetts have publicly endorsed such reforms. In New York City, the issue was highlighted recently when Mayor Michael Bloomberg promoted his own plan to reduce rising pension costs, which are among the biggest pressures on state budgets.

Last week, Bloomberg promised to support New York Governor Andrew Cuomo’s proposed public-pension reforms. “We will work to pass several basic reforms to bring our pension system into the 21st century,” Bloomberg said in his annual State of the City Address, aiming to solve the city’s looming $2.4 billion deficit. With costs for New York City taxpayers only heading higher, Bloomberg said he wants lawmakers to hike the retirement age for non-uniformed city employees to 65. Additionally, he announced that he wants to reduce the cost of the city’s pension system by consolidating some of its administration and raising the retirement age for new employees.

In New Jersey, Governor Chris Christie addressed the state General Assembly on January 11, saying the unfunded liability of the New Jersey Division of Investment would grow to a “staggering” $183 billion from the current $54 billion within three decades. And in his State of the Commonwealth address, Virginia Governor Robert McDonnell proposed that state employees contribute 5% of pay to the $51.9 billion Virginia Retirement System.

Despite the urges by governors around the country, a recent report from the Center on Budget and Policy Priorities concluded that misunderstandings regarding state debt, pensions, and retiree health costs are exaggerated. The report stated that predictions of an “imminent fiscal meltdown” among US states and municipalities have created misperceptions also diverting attention from needed structural reforms.

While US states will reportedly confront deficits totaling $140 billion in the next fiscal year, the Center has concluded that the operating deficits most states are forecasting for fiscal 2012 are largely the result of the weak post-recessionary economy. “Overheated claims about state and local budget problems not only are inaccurate, but also could lead policymakers to take unwise steps such as allowing states to declare bankruptcy or forcing them to change the way they report their pension liabilities as a condition for issuing tax-exempt bonds,” Iris J. Lav, senior adviser at the research group, stated in a news release.