It’s also holding officials accountable on issues like the public pension crisis

PENSIONS

Many eyebrows were raised during a recent city budget meeting in Portsmouth. According to the Portsmouth Herald, the city manager told city councilors that Portsmouth’s mandated portion to the state retirement system would balloon from $290,000 to a whopping $1.9 million. Councilors called the development, which would cause a sizable increase in the city’s 2022 budget, “ugly” and “a kick in the shins.” Had anyone been paying attention this would not have been a surprise.

The councilors in Portsmouth are not alone. The shock waves are shared by towns, cities, counties and states across the country as they come to terms with the depth of the pension crisis. In its 2020 report, the pension reform organization Equable noted: “While a few statewide pension plans recovered from the Great Recession, the majority of retirement systems have entered this next recession in a weaker position than they were going into the last recession.”

Further, only five states (Washington, Idaho, South Dakota, Wisconsin and Tennessee) had funded at least 90% of their pension plans.

There are a number of reasons we face this crisis along with the costs of a deadly pandemic, an uncertain economic future and climate change. During flush economic times, when we enjoyed annual double-digit equity returns and moderate inflation, it was easy for officials at all levels of government to be generous with increased benefits for police officers, firefighters, teachers and public workers. It was also easy for the public not to take notice. So, we kicked the proverbial can down the road.

A mid-2020 report by Pew Charitable Trust revealed the $1.24 trillion 50-state pension funding shortfall between assets and future liabilities had improved slightly through 2018 after a decade of slow recovery from the 2007-08 economic crisis. But as the pandemic took hold of our health systems and the economy, the report warned the gap would increase dramatically by more than $500 billion.

A New York Times story on the pandemic’s impact on the pension crisis captured the high stakes. It pointed out that California’s state pension system, Calpers, posted an investment snapshot that “suggests the total value of its investments has fallen by some $69 billion” from mid-February to mid-April.

The pension crisis is apolitical, impacting blue and red states with equal fiscal ferocity, and it is going nowhere. “We have a demographic crisis and that’s showing up in the nation’s retirement systems,” said William Glasgall, a senior vice president at The Volcker Alliance, an organization dedicated to good governance at all levels. “They neglected to fund them properly.”

It is easy to blame local and state officials and fund managers for bad deals and risky investments. What happens when faced with a fiscal crisis is that individual citizens and taxpayers do not look in the mirror and ask what they could have done to mitigate the crisis.

We can’t rewrite the past, but we can ask questions and do much better as citizens going forward. We can expand our civic duty and hold local officials accountable and question their due diligence when taxing and spending decisions are made. How many officials are asked to present the best- and worstcase actuarial scenarios regarding public pensions? Do they know the impact of compound interest and inflation on funding outcomes? No one begrudges pensions for our public servants, but no one is well served by ignoring the potential fiscal blowbacks of ever-escalating liabilities.

The pension crisis is but one debt obligation being kicked down the road that will have an enormous impact on the futures of our children and grandchildren.

These dilemmas always start at a local level. Whether it is a small town with a board of selectmen or a big city council, we can make a difference.

In my case, the same fiduciary standards I uphold with serving my clients as a financial adviser are equally applicable toward our institutions. An informed, engaged citizenry helps make government, at all levels, work better, smarter and with greater fiscal transparency and accountability.

Tom Sedoric lives in Rye.