There was a time when a soaring stock market and zero percent interest rates, leading to soaring values of existing fixed-income investments, would have been enough to pull state and local government public employee pension funds out of the hole, at least by the (in my view false) measures used. Today, however, that hole is so deep that for all state and local government pension funds in the U.S. combined, according to my estimate, later-born generations face a $3.5 trillion debt to pay for public employee pensions as of FY 2016, or 21.8% of the personal income of everyone in the United States. Over and above any pension benefits that are being earned today. That exceeded the $3 trillion in formal state and local government bonded debt at the time.
More and more, various organizations are coming up with estimates of this combined debt burden, trying to predict which states and localities will be headed for bankruptcy, public service insolvency, or both. Having pioneered this way of thinking nearly a decade ago with the first “Sold Out Future” ranking, let’s continue the analysis with regard to public employee pensions.