By discounting pension liabilities at high interest rates under government accounting standards, many U.S. state and local governments understate their pension liabilities and the costs of providing pensions to public-sector workers.
During the next two decades some U.S. states, unless they substantially increase taxes, cut spending, and/or change public-sector pensions, will require a combination of severe austerity budgets, a federal bailout, and/or default.
The discounting is unrealistically high, so underfunding is understated. Pretty simple. The distortion is large, according to experts. -see background information here
Its outrageous that this is permitted. See Novy-Marx and Rauh's IGM funded research to see the massive degree of understatement. -see background information here
Novy-Marx and Rauh peg current state pension assets at $1.94 trillion, and liabilities at $5.17 trillion, a $3.23 trillion shortfall! -see background information here
The estimated shortfall magnitudes are large according to experts like Josh Rauh, and roughly double state indebtedness, adding $3 trillion. -see background information here
Current path is unsustainable; the longer we wait the worse the eventual adjustment, but for OH and IL at least things already look bad. -see background information here
