State and Local Unfunded Pension Liabilities Pose Yet Another Bubble Crisis

June 14, 2012 in Uncategorized

Ace  financial reporter, Charlie Gasparino of Fox News, broke the story  yesterday that:

“Last year, as panic raged through the municipal bond market that cities and possibly even states might default on their debt under the burdens of massive government expenditures, particularly in the form of unfunded liabilities posed by public pension funds, J.P. Morgan (JPM: 34.30, +0.53, +1.57%) went out and studied whether the problem was indeed as acute as some had feared.”

The result wasn’t something J.P. Morgan, the largest underwriter of municipal debt, wanted to brag about, at least in public, according to people with direct knowledge of the matter. The study, completed in March 2011, showed that problem with pension funds was indeed real: States and big cities had amassed trillions of dollars of unfunded liabilities for their public pension systems.

At the same time, these municipalities were failing to properly account for their exploding pension costs, and the only way out of the mess involved public officials making some politically difficult decisions, including raising taxes significantly, slashing budgets, and demanding that public workers pay a portion of their retirement benefits.”

In an interview on Fox Business, Gasparino specifically mentioned Massachusetts. My Town of Andover alone,  has amassed nearly $215M in Unfunded Liabilities for our FY2013  budget noted as  Post Employment Benefits (OPEB) Liabilities . The Top 50 Cities and Towns in MA ( There are 296 towns and 13 Cities) have amassed $20B in OPEB Liabilities. 

In 2011 41% of all of our state’s total Combined Debt and Pension Liability was due to Unfunded Pensions!

Over the last few years, the Federal Reserve has steered our economy to unprecedented low interest rates which has served to mask our Pension liability ticking time bomb. Any uptick in interest rates will unleash the consequences  in the JP Morgan report.

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