Add another half-trillion dollars to America’s debt.
No, Congress hasn’t been on another spending spree. (Yet.)
I’m talking about another $600 billion in debt — almost $2,000 for every man, woman and child — that state and local governments have racked up but don’t recognize.
I’m talking about money that we owe to just one category of retirees: Teachers. Money that we already would have known about if government followed the same accounting rules as private companies.
Add that money to the teacher-retirement debt we already knew about, and we’re talking about almost $1 trillion.
Whoever said “trillion” is the new “billion” wasn’t kidding.
These figures come from a new report, “Underfunded Teacher Pension Plans: It’s Worse Than You Think.” The authors argue the funds underestimate funding gaps by overestimating the rate of return on their investments. They say the funds could avoid this problem by following private-sector accounting rules, which require adjustments to account for pension investments’ risk.
That’s right: The unfunded liabilities of teacher pensions across the country have been understated by an amount — $600 billion — roughly equivalent to the 2008 bailout of Wall Street. And it’s because the plans, like the banks, weren’t accounting prudently enough for risk.
As a result, the plans nationwide are not close to the benchmark of 80 percent funded, as previously thought, but just more than half-funded.
“The Dow Jones Industrial Average would have to nearly double overnight to make up for the present underfunding of these plans,” write co-authors Josh Barro of the Manhattan Institute for Policy Research and Stuart Buck, a doctoral fellow at the University of Arkansas.
Georgia is better off than most states, which isn’t to say we’re in great shape.
Our Teachers Retirement System is still two-thirds funded after Barro and Buck’s adjustments. But they peg the plan’s unfunded liabilities at $23.6 billion, compared to the officially reported $4.8 billion. The difference in those figures, $18.8 billion, is greater than the entire 2011 state budget will be.
Yep, the hole just got deeper.
Actually, it got deeper a long time ago. For decades, governments have hired workers on the premise that they would earn lower wages but make up for the shortfall with better benefits and job security.
That premise is no longer true. USA Today reported last month that government workers earn 13 percent more than their private-sector counterparts in the same occupations. With benefits, public-sector compensation is an astounding 55 percent higher.
It’s a model that was bound to fail, because it allows elected officials to make promises their successors will have to keep.
“I think there is a real institutional problem with these systems where you get to make the promise now” about pay and benefits, Barro told me in a telephone interview Tuesday, “and you don’t have to pay for it for decades.”
Barro’s comment is a perfect description of the government model used in this country since the New Deal. The most crushing components of our growing federal debt are two programs that likewise promise today’s workers a share of their children’s future wages: Social Security and Medicare.
It is a failed model.
And we can’t afford to keep funding this failure much longer. Barro notes that our $1 trillion nationwide in unfunded liabilities for teacher pensions equals two years of our entire spending on K-12 education.
Happy Tax Day. It won’t get any easier from here.