California, New Jersey, Ohio, Pennsylvania – perilous public pensions provide cautionary examples for Oklahoma?

National attention has been drawn to the collapse of several municipal governments in California, outlined in an overview from CapitolBeatOK last week.  While Oklahoma continues to enjoy notable economic growth and one of America’s lowest unemployment rates, stories from across the nation provide cautionary examples of how unfunded liabilities can envelop even seemingly-prosperous communities.

A common thread in California crises – most recently in San Bernardino — is the presence of unsustainable, overly generous government pension programs.

That is also the case in the serious municipal financial troubles now unfolding in the Commonwealth of Pennsylvania’s city of Scranton. 

Reporting from the state Capitol in Harrisburg, Eric Boehm of Pennsylvania Independent details problems in a state law blocking cities from changing local pension fund operations to address unfunded liabilities. 

Scranton faces a roughly $300 million revenue crunch – and $90 million of that comes from unfunded pension obligations. Boehm reports pension systems for firefighters, police officers and non-uniformed employees are funded at only 47 percent, and listed as “severely distressed” by a state commission that oversees the Keystone State’s retirement systems. 

In all, 26 Pennsylvania municipalities fall into that “severely distressed” category. Things are so bad that in Scranton, a community of 75,000 known as a “Progressive City,” Mayor Chris Doherty has cut the pay of every municipal employee to $7.25 an hour. The city council is deadlocked over the local budget, and no banks are willing to loan the city money.  

In another timely news story, New Jersey Watchdog reports that the Garden State’s office of the comptroller includes an investigator who is receiving both a $92,000 annual paycheck and an $83,254 pension

“Double-dippers” are a common problem for government pensions, including in Oklahoma. 

Ohio Attorney General Mike DeWine, meanwhile, is leading the Buckeye State’s pension funds into a class of investors suing JPMorgan Chase and Company. A news report by Maggie Thurber for Ohio Watchdog is focused on losses of more than $27.5 million, flowing from the “London Whale” trading scandal that has reached estimated worldwide losses of $5.8 billion for the Chase system. 

Such challenges for systems across America are echoed in Oklahoma’s continuing difficulties, although many analysts believe the Sooner State is steadily transforming government pension and retirement structures.

In 2011, state Rep. Randy McDaniel of Oklahoma City led a set of transformative changes in state pension policy, but a press for further improvements in 2012 was largely frustrated.

This summer and fall, McDaniel will lead two Interim Studies aiming at making the case for broader changes or better management.

Study 12-008 will conduct “analysis of the state pension system.” McDaniel’s Pension Oversight Committee, as a state House staff description details, “needs to review the impact of recent pension reforms enacted. We may also explore new ideas to continue to improve the financial condition of the plans.” McDaniel plans two sessions devoted to the effort.
In study 12-052, Rep. McDaniel will investigate “strategic funding” for pensions. He promises to press on  “the relationship between pay raises and contribution rates, … the use of excess state funds to reduce unfunded liabilities, … funding mechanisms for financial improvement,” and “funding challenges and responsibilities and the need for reforms.” 

The Pew Center on the States, in a report issued last month, placed Oklahoma among the weaker states in terms of pension adequacy – but that study was based on comprehensive national data through Fiscal Year 2010.

The Pew report drew a dreary picture, estimating unfunded state pension liability had reached $1.4 trillion at the peak of the Great Recession. Over a decade, American states allowed adequacy of funding to erode dramatically. While more than half the states were fully (or nearly so) funded in 2000, by 2010 only Wisconsin was at that benchmark, while 34 states were below the 80 percent level.

In the Pew analysis through 2010, Oklahoma fell well below the 80 percent threshold, widely accepted as the lowest acceptable percentage for adequacy of funding — with only 56 percent of benefits funded and only a 70 percent payment toward annual “required contribution” that year.

The state’s public sector pension liability was listed as $36,368,230 thousand (that is, $ 36 billion +). Oklahoma may have shifted as much as 10 percent toward the 80 percent benchmark due to the 2011 reforms. Indeed, the state’s 2011 revisions have been praised throughout the pension management profession as an example of the kind of step states must take to pull out of the widespread pension trough. 

McDaniel’s reforms, fashioned in alliance with state Sen. Mike Mazzei of Tulsa passed the Legislature and were signed into law last year

McDaniel believes the Sooner State’s standing in national rankings already has improved, and will continue to do so as the 2011 laws take hold. 

Editor’s Note: Pennsylvania Independent, New Jersey Watchdog and Ohio Watchdog are affiliates of the Franklin Center for Government and Public Integrity.  CapitolBeatOK is a project of the Franklin Center.