Opponents of defined-benefit pensions are having a field day with the news out of Detroit. Though that city’s financial woes have much more to do with lack of a diversified economy, stark population and demographic challenges and mismanagement at city hall, public-pension foes nationwide are trying to argue that pensions sank Detroit and will sink other cities, too.
Kim Crockett of the Center of the American Experiment (www.americanexperiment.org) is only the latest voice in a well-orchestrated effort to misrepresent the role of pensions in state and local government financial management. On her blog, she claims that Minnesota taxpayers will pay higher borrowing costs because of pension debt, and she cites Moody’s slight downgrade of Minneapolis’ credit rating. Moody’s signaled last year that it was going to take an approach to pension liabilities that would result in downgrades for cities nationwide.
Here’s what the ratings agencies said about Minnesota’s pensions in their August 2013 ratings of our state’s general obligation bonds:
• Fitch: “The state’s unfunded pension liability is below average as a percent of personal income, and on a combined basis the burden of net tax-supported debt and adjusted unfunded pension obligations as a percentage of personal income is well below the median for U.S. states rated by Fitch at 5.1 percent. In the 2010 session the state passed pension reform that increased employee contributions and reduced benefits, affecting both current employees and retirees; the reforms survived legal challenge.” (Fitch Ratings, 8/1/2013)
• Moody’s: “The state’s aggregate reported pension funding ratio was adequate 82.6 percent as of June 30, 2012. … The overall retirement systems’ adjusted net pension liability was 27 percent of revenues, below the 50-state median of 45.1 percent.” (Moody’s Investors Services, 7/302013)
• Standard & Poor’s Ratings Services: “Minnesota’s pension plans are reasonably well-funded relative to those of other states and there have been significant reform measures implemented in the past couple of years aimed at lowering the liabilities. Court challenges to these reforms have been resolved in favor of the state.” (S&P Ratings Services, 8/2/2013)
Ms. Crockett repeatedly charges that “accounting tricks” are used to “obscure the size of the pension problem” and hide the “pension crisis” from public view. Information on the financial status of Minnesota’s public pensions is readily available to the public. Each fund must issue a Comprehensive Annual Financial Report every January, provide financial status updates to the legislature in open meetings at least once a year, and disclose annual actuarial valuation reports – among other financial disclosures.
The problem for Ms. Crockett is that the facts don’t support her “pension crisis” storyline – therefore, someone must be hiding something. So she is urging voters to pressure Minnesota’s elected officials and convince them that there is a Detroit-style crisis where none exists.
Susan M. Barbieri is the communications officer for the Minnesota Teachers Retirement Association, the Public Employees Retirement Association and Minnesota State Retirment System.