(2009-05-15) Public Pension Bomb

For years, states nationwide have shortchanged the retirement programs that cover teachers, police, and other public employees; now the stock market plunge has wiped out billions of dollars from already underfunded plans. California, New York and Illinois are among the states scrambling to plug multibillion-dollar holes in their Pension systems. The growing obligations raise the specter of higher taxes, diminished services, or even another round of costly federal bailouts. They gives the details for New Jersey:

• they (James Florio, Christine Whitman) played with forumulas to reduce their annual contributions

• many of them lost money in the DotCom bubble-crash

• they kept increasing benefits

• now they lost lots more in Credit Crisis 2008.

If union concessions, cost cutting, and higher taxes are not enough, then what? Inevitably, New Jersey and other states would turn to Uncle Sam for help (Bail-Out). The pressure on Congress would be great. "How will they say no to state workers when they've said yes to bankers?" asks Marketti. Even so, Congress might balk at opening the door to a series of multibillion-dollar state bailouts. In that case, we might well see a wave of municipal or even state bankruptcies as pension obligations overwhelm local budgets. To Leonard Lance, the pension blowup is one more consequence of the financial recklessness that defined an era. "In so many areas there has been inappropriate spending," he says. "Now we all have to pay."