Source: Public Budgeting & Finance, Volume 33, Issue 3, Fall 2013
• Introduction: Symposium on State and Local Government Pensions
by Philip Joyce
In this issue, Public Budgeting & Finance presents new research on a topic of vital importance to the future of state and local finance. States and localities face substantial challenges in making good on promises to retirees—promises that cover both traditional defined benefit pensions as well as health care coverage. While imbalances in pension funding are a relatively old story, it is only since the Governmental Accounting Standards Board’s (GASB) requirement that states and localities disclose their Other Post-Employment Benefits (OPEB) liabilities that the funding gaps for health care benefits have become obvious.
• Pension Reform in Atlanta: Funding Past Promises in an Uncertain Future
by Sarah Beth Gehl, Katherine G. Willoughby And Michael J. Bell
his research assesses state and local pensions in the U.S. Concerns of locally administered pensions are addressed; actions taken and possible reforms to these plans are noted. Then, recent pension reform in Atlanta, Georgia is examined. In 2009, Atlanta had the 12th lowest funding ratio for its general employee fund compared to all other city plans in Georgia. Atlanta’s story explains the depths of its pension problems, how the pension got into trouble and the changes necessary to advance fiscal sustainability. Such plans will require strict discipline by politicians, pension boards and financial managers, and tempering member expectations to reach sustainability.
• Impact of Unfunded Pension Obligations on Credit Quality of State Governments
by Christine R. Martell, Sharon N. Kioko And Tima Moldogaziev
This study reviews the funding status of state-administered pension plans and their impact on state credit quality. As the fund ratio (actuarial assets/actuarial accrued liability) of state-administered pension plans decreases, states are more likely assigned a lower rating. Moreover, rating outlooks are sensitive to the fund ratio, especially for migration between stable and negative outlooks for states with lower fund ratios. These results are a timely pretest to the 2013/2014 implementation of GASB Statements No. 67 and 68, serving as a benchmark to assess whether new reporting requirements will yield information to alter the market’s response to unfunded pension liabilities.
• The Impact of Budget Stabilization Funds on State Pension Contributions
by Travis St.Clair
Despite the shortfalls in public employee pension funds, there is little known about the effect of fiscal institutions on pension funding. This paper focuses attention on the link between pension contributions and budget stabilization funds (BSFs) over the period 1997–2008. It employs the Blundell–Bond (1998) estimator in order to address the concern that the deposit and withdrawal rules that drive the management of BSFs may be endogenous to state pension contributions. Empirical results suggest that BSFs with strict deposit rules are associated with higher pension contributions, while strict withdrawal rules are associated with lower contributions.
• The Management of Defined Contribution Pension Plans in Local Government
by Gang Chen, Carol Ebdon, Kenneth A. Kriz And Olivier Maisondieu Laforge
Despite the growing importance of defined contribution pension plans in state and local governments, little research exists on how those plans are actually managed. Our study fills a gap in the literature through using a mixed-methods approach on a sample of local governments in Nebraska. We employ a mail-out survey to get broad-based information on DC plan administration throughout the state, and use face-to-face interview techniques on a subsample of plans to investigate the details of plan management. We find several deviations from promulgated best practices, and substantial variation in administrators’ knowledge of and role perception related to DC plans.
• The Opportunity Cost of Public Funds: Concepts and Issues
by Jérôme Massiani And Gabriele Picco
This paper reviews the main conceptual issues regarding the notion of Opportunity Cost of Public Funds (OCPF) and its use in normative economics. Despite the importance of the mechanisms it illustrates, the OCPF still has received too marginal attention in public economics literature and is often handled with some definitional ambiguity. Our review indicates that the core of the notion lies in the deadweight loss and, to a minor extent, in administrative costs, while other aspects like crowding out are more controversial. Moreover, we argue that the financing mechanisms of the public expenditures should be considered for a proper analysis and quantification of OCPF and suggest that public expenditures are generally financed through the displacement of funds from alternative uses. We conclude with a review of available quantifications.
• Assessing the Relationship Between Objective and Subjective Measures of Fiscal Condition Using Government-Wide Statements
by Craig S. Maher And Steven C. Deller
Government Accounting Standards Board (GASB) Statement 34 has been in effect for a decade yet there is limited research examining government-wide financial reporting data. This study builds on our ability to delve into the fiscal condition of Wisconsin counties during the Great Recession. The principal aims of the research are: (1) expand on works utilizing GASB 34 reporting requirements; (2) report on county administrators perceptions of fiscal condition; and (3) examine the relationship between subjective and objective measures of fiscal condition. We find little evidence that objective fiscal condition indices are related to subjective administrative assessments of fiscal condition.