Below is a CNNMoney.com article that discusses the Pew Center study that was released yesterday. Governments across the county have a huge shortfall for pensions and health benefits for retirees. Taxpayers can expect more tax increases this year.
NEW YORK (CNNMoney.com) — Just as they are contending with massive gaps in their operating budgets, states and localities must also deal with a $1 trillion deficit in public employees’ retirement benefits’ funds, a new report found.
The shortfall amounts to more than $8,800 for every household in the nation, according to the Pew Center on the States, which published its findings Thursday.
States largely got themselves into this mess by failing to make annual contributions while also enhancing benefits, the study found. Now, they are behind by a total $452 billion in their pension accounts and $555 billion in their retiree health funds, as of the end of fiscal 2008, which ended June 30 for most states.
The deficit is likely even more severe because the report did not take into account the crumbling of the stock market in the latter half of 2008. The typical pension plan lost 25% of its value in 2008.
States must find ways to make up these gaps because retiree benefits for public workers are largely guaranteed by union contract. And they are funded through contributions from both employees and state employers, as well as investment returns.
So when gaps appear, states must ask their residents to make up the difference, usually through property tax or income tax hikes.
“Ultimately, taxpayers could face higher taxes and cuts in services,” said Stephen Fehr, one of the report’s authors. “You can’t ignore the problem. It’s just going to be more serious budget trouble for states down the road.”
To be sure, the bill isn’t due all at once and no state is in danger of default. These benefits are paid out over decades. Still, the deficits must be addressed sooner than later or the gaps will simply balloon more.
The full report from the Pew Center is here. Delaware got a “Solid performer” rating on pensions and a “Needs improvement” on retiree health care.