The State Of North Dakota Needs To Use Honest Accounting In Calculating Pension Debt

Recently a group called State Budget Solutions released a report on debt held by the various states. Although North Dakota ranked as one of the best states in the nation in terms of debt, the more than $6.1 billion in debt reported is still troubling. Especially in that it’s something not a lot of North Dakotans are all that aware of.

Most of that debt is composed of unfunded pension liabilities for public workers, which total more than $4 billion. So why are we hearing about this problem from a group like SBS instead of our state leaders? Because our state leaders don’t think there’s a problem. Office of Management and Budget director Pam Sharp dismissed the report.

“The biggest problem with this report is that they report that the state has $4 billion of pension debt,” Sharp told the Minot Daily News. “The $4 billion isn’t even close.”

The thing is, SBS isn’t the only group showing a $4 billion pension shortfall. “According to a fall 2009 article in the Journal of Economic Perspectives, the gap between North Dakota’s pension obligations and the amount it has or is planning to set aside is nearly $4 billion,” wrote Grand Forks Herald opinion editor Tom Dennis in 2010 noting that states, including North Dakota, use funny math when calculating their pension obligations.

The State of North Dakota, much like a lot of other government entities, assume an 8% rate of return on their pension investments. That’s all well and good if that 8% rate of return gets met, but there’s plenty of reason to be skeptical. In fact, financial guru Warren Buffett called the expectation for those sort of long-term returns is “crazy.”

State and local governments “use unrealistic assumptions . . . in determining how much they had to put in the pension funds to meet the obligations,” Buffett said in 2011. “I would say that when they have pension assumptions that are assuming they’re going to earn 8% or something like that when bonds are yielding what they are now, that’s crazy.”

In the 2011 legislative session there was an attempt at pension reform which would have shifted the state away from the sort of defined-benefits plans that cause these problems. Sadly, it was defeated after a big push-back by the state’s teacher and public worker unions who were able to point to the state’s fairy-tale account method, which then showed the pension shortfall in the hundreds of millions instead of the billions, as proof that reform wasn’t needed.

But reform is needed, and the first step to reform is admitting there’s a problem. Unfortunately, our elected leaders are unwilling to admit there’s a problem. Which is all well and good for them, this problem for the state is still years down the road, but shouldn’t we want to fix it now and not later? Should we put this problem to bed on our watch instead of kicking it down the road for our children?

We need pension reform, and we need it soon.

Tags: North Dakota News, Pensions, state budget solutions