US public pensions face $2,500bn shortfall

Voici, une dure réalité dans un avenir rapproché.

Extrait de : US public pensions face $2,500bn shortfall, Nicole Bullock in New York, FT, January 17 2011

US public pensions face a shortfall of $2,500bn that will force state and local governments to sell assets and make deep cuts to services, according to the former chairman of New Jersey’s pension fund.

The severe US economic recession has cast a spotlight on years of fiscal mismanagement, including chronic underfunding of retirement promises.

Munis Bonds “States face cost pressure, most prominently from retirement benefits and Medicaid [the health programme for the poor],” Orin Kramer told the Financial Times. “One consequence is that asset sales and privatisation will pick up. The very unfortunate consequence is that various safety nets for the most vulnerable citizens will be cut back.”

Mr Kramer, an influential figure in the Democratic party and still a member of the investment council that oversees the New Jersey pension fund, has been an outspoken critic of public pension accounting, which allows for the averaging of investment gains and losses over a number of years through a process called “smoothing”.

Using data from the states, the Pew Center on the States, a research group, has estimated a funding gap for pension, healthcare and other non-pension benefits, such as life assurance, of at least $1,000bn as of the end of fiscal 2008.

Chris Christie, the Republican governor of New Jersey, said in his state of the state speech last week that, without reform, the unfunded liability of the state’s pension system would rise from $54bn now to $183bn within 30 years.

Juste au Québec,c’est 83 milliards de déficits actuariels justes pour les fonds de pension du secteur public.

Mr Kramer’s estimates are based on the assets and liabilities of the top 25 public pension funds at the end of 2010. The gap has risen from an estimate of more than $2,000bn at the end of 2009. He also used a market rate analysis based on the accounting used by corporate pension funds rather than the 8 per cent rate of return that most public funds use in calculations.

Disons que leur calcul actuariel utilisé était drôlement optimiste, de plus en plus de firme indépendante conteste la validité de leur méthode de calcul, et les déficits sont nettement plus monstrueux, remarquer ça ne change plus grande chose, que ça soit 80, 100, 120 milliards, on a même plus d’argent pour payer les comptes courants, un jour ou l’autre la dure vérité va nous atteindre.

Pension liabilities are not included in state and local government debt figures.

Voici, une petite faiblesse, techniquement les États américains ne peuvent faire des déficits d’opérations, par contre ils ne tiennent pas compte de futurs engagements, alors tout bon politicien qui se respecte et veut se faire réélire promet n’importe quoi, si c’est un cadeau empoisonné dans 10 à 15 ans, c’est leur moindre de leurs soucis.

Concerns about the financial health of local governments have sparked warnings of a rise in defaults for cities and towns and a sell-off in the $3,000bn municipal bond market where they raise money. Last week, the interest rate on 30-year top rated municipal debt rose above 5 per cent for the first time in about two years. Amid the volatility, New Jersey had to cut the size of a planned bond sale.

Et oui, les gens qui achètent des bonds municipaux commencent sérieusement à douter de leurs solvabilités, comme les dettes souveraines, beau marasme ! qui s’en vient !.

Although Mr Kramer said some local governments would experience “severe strain”, he did not foresee mass defaults.

“I don’t assume that you will have that level of defaults just because there are various remedies, including asset sales, that you can engage before you have to default,” he said. “States have an interest in their major municipalities not defaulting.”

The state of Pennsylvania, for example, last year advanced money to Harrisburg, its capital, so that the cash-strapped city could avoid a default on its general obligation bonds.

In February, Illinois, which is facing an unfunded pension obligation of at least $80bn, plans to sell $3.7bn of bonds to pay for its annual contribution.