The Kinky Accounting of Public Pension Obligations

Times are changing.The federal government isn't going to allow state and local governments to keep Enron style books concerning their pension obligations.The New York Times reports:

SINCE 1983, the city of Duluth, Minn., has been promising free lifetime health care to all of its retired workers, their spouses and their children up to age 26. No one really knew how much it would cost. Three years ago, the city decided to find out.


Mayor Herb Bergson said that Duluth, Minn., "isn't going to function" if it has to keep its promise of providing lifetime health care to its retirees.

It took an actuary about three months to identify all the past and current city workers who qualified for the benefits. She tallied their data by age, sex, previous insurance claims and other factors. Then she estimated how much it would cost to provide free lifetime care to such a group.

The total came to about $178 million, or more than double the city's operating budget. And the bill was growing.

The Times has written a good article here well worth your time.We'd like to correct a constant falsehood though,the Times quotes Teresa Ghilarducci, an economics professor at the University of Notre Dame who says "The problem is that people have counted on those benefits, and many have accepted lower salaries in exchange for better retirement benefits."Government workers are overpaid relative to their skill set.Do you really want to get long muni bonds with long dated maturities from some of these state and local governments?