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CBO: State and Local Government Pension Liabilities Could Be $3 Trillion

Mike Klein

Another voice chimed in this week on the unhealthy status of America’s public pensions.  The Congressional Budget Office wrote, “The recent financial crisis and economic recession have left many states and localities with extraordinary difficulties for the next few years, but structural shortfalls in their pension plans pose a problem that is likely to endure much longer.”

The Congressional Budget Office is the federal agency mandated to provide nonpartisan analysis to the U.S. Senate and House budget committees.  CBO also creates an independent re-estimate of White House federal budget proposals.  It regularly studies issues like pensions.

CBO analyzed the Public Fund Survey of 126 state and local government pension plans and it reported those plans held $2.6 trillion in assets in 2009 compared to $3.3 trillion in future pension payment liabilities.  The result would be a $0.7 trillion unfunded liability which the Congressional Budget Office said was the lowest percentage asset level in two decades.

Congressional Budget Office Report Illustration

CBO Director Douglas Elmendorf explained the actual problem is more serious in his note that was attached to “The Underfunding of State and Local Pension Plans.”  Elmendorf wrote:

“The reported amount of underfunding varies significantly depending on the approach used to calculate assets and liabilities.  The estimate of unfunded liabilities cited above — $0.7 trillion – is calculated based on the actuarial guidelines currently followed by state and local governments.  Under those guidelines, actuaries compute liabilities by discounting future benefit payments using a discount rate based on the expected rate of return on the plans’ assets.

“An alternative method, the so-called fair-value approach, aims to measure the market value of assets and liabilities.  It more fully accounts for the costs that pension obligations pose for taxpayers by discounting future cash flow rates at a rate that reflects their risk characteristics.  Because the future cash flows associated with accrued pension liabilities are fixed and carry little risk, the discount rate used under this approach is lower than under actuarial guidelines.  That approach yields a much larger estimate of unfunded liabilities for those plans in 2009 – between $2 trillion and $3 trillion.”

Pension fund assets are further impacted by total years of service and salary levels at retirement, how long pensioners are projected to live and cost-of-living adjustments.  They also are affected by pension plan changes as governments move from defined benefit pensions based on service years and salary to 401k-style pensions in which employees make contributions to funds they manage and employers provide some matching funds.

The Pew Center on the States released a similar report on April 26.  Pew estimated that states had a $1.26 trillion unfunded liability in pension and retiree health care accounts.  Click here for the Congressional Budget Office report.  Click here for the Pew Center on the States report.  The idea to take away from all these numbers is that pension funds are in deep water.

(Mike Klein is Editor at the Georgia Public Policy Foundation)

May 6, 2011 Posted by | Uncategorized | , , , , | Leave a comment

Georgia Public – Private Partners Launch Internet Shipping Marketplace

Mike Klein

The next big thing in logistics (that means moving stuff from one place to another) might already have happened right here in Georgia.  Georgiafreight.com is a coordinated marketplace of transportation options for moving anything from here to there or almost anywhere.

It exists entirely on the Internet, it’s easy to use (even I was able to understand it) and here’s the best news yet, it comes with a whole bunch of built-in discounts. You can get discounts for being a Georgia company and for shipping from one Georgia address to another.

Georgiafreight.com is a project of Efreightsolutions, a private company, but it was hatched with lots of assistance from the Georgia Center of Innovation for Logistics which is headquartered on the Georgia Tech campus in Savannah.  It received a big boost forward from Kennesaw State University president Dan Papp who connected Efreightsolutions and the Innovations Center.

“It’s an online freight portal and there are lots of them out there, but what was lacking was a focus on Georgia,” said Page Siplon, director of the state’s Center of Innovation for Logistics.  This online model provides several tiers of service and lots of options for moving product by air, rail, truck or water.  Siplon said the model could soon be expanded to California and New York.

The Georgiafreight.com story will be center stage when the 2011 Georgia Logistics Summit convenes over two days next week at the Cobb Galleria Centre in Atlanta.  But the company’s ability to help industries move products will be just one reason that it makes headlines.

Using its own private funds, Georgiafreight.com will make program awards to five Georgia universities that offer logistics education.  Siplon said the company will also announce an inaugural Logistics and Community Leadership Award to a person (or persons) for work within the industry and dedication to foster care programs.  University and personal award recipients will be honored during Monday evening’s reception at the Cobb Galleria Centre.

Page Siplon

Next Tuesday’s daylong third annual Georgia Logistics Summit is rapidly becoming a must-attend event for private industry and public stakeholders.  Siplon launched the event as a 2009 luncheon and 450 attended.  “We knew we were onto something,” Siplon said.  Last year it moved to the Cobb Galleria and attendance doubled.  Some 1,200 are registered for Tuesday.

The entire reason the conference exists is to explain how Georgia can move products.  “It’s a complicated industry so when you say logistics, a lot of things come to mind,” Siplon said.  “What was lacking was a place where all those people could get together and talk.”

Tuesday scheduled keynote speakers include Jack Wells, chief economist for the U.S. Department of Transportation.  Wells will meet with Georgia Ports Authority executives on Monday in Savannah before his conference address on Tuesday in Atlanta.

The Savannah River and harbor deepening project remains the biggest elephant in the room. Georgia needs to dredge the river from its current 42-foot depth to 48 feet to accommodate larger ships that will begin to navigate the new Panama Canal in three years.  Project cost is estimated at $500-to-$600 million, to be shared between Georgia and the federal government.

Georgia has already committed its share of about 25 percent, but Washington has not followed suit.  “Yes, that is probably the most visible project because it affects so many things,” Siplon said.  “It is a project we are going to have to fund one way or another.  Georgia is at the crossroads of global commerce.  We shouldn’t have to beg for resources to do that.”

Here is a video about the economic impact of the Georgia ports in Savannah and Brunswick.

Tuesday’s conference will include breakout sessions on air freight, agribusiness, energy, life sciences, manufacturing and ocean freight.  Other scheduled speakers include Governor Nathan Deal, Atlanta Mayor Kasim Reed, Georgia Ports Authority executive director Curtis Foltz, state economic development commissioner Chris Cummiskey, state transportation commissioner Vance Smith and logistics industry executives.

Click here to learn more about the Georgia Center of Innovation for Logistics.

(Mike Klein is Editor at the Georgia Public Policy Foundation)

May 6, 2011 Posted by | Uncategorized | , , , , , , , , , , , , , , | Leave a comment