Discussion of “The Sustainability of State and Local Government Pensions: A Public Finance Approach” by Lenney, Lutz, Scheule, and Sheiner (LLSS)

Link: https://www.brookings.edu/wp-content/uploads/2021/03/1c_Rauh.pdf



Main Comments
• Stabilization goal is reasonable to consider
• However, public sector’s approach to funding with risk assets creates
additional issues for this type of debt (unfunded pension liabilities)
relative to government bonds
• Instability due to market risk isn’t in the model, because the model is
deterministic: no distribution of possible outcomes
➢ Higher expected return you target, the greater the distribution of outcomes
• Only meaningful scenario is r=d=0% → fiscal adjustment is 14.9% of
payroll vs. current 29%. So a 51% increase.
➢ I will provide some reasons I think this might still be too low

Author(s): Joshua Rauh

Publication Date: 25 March 2021

Publication Site: Brookings

Bipartisan Opportunism Is to Blame for California’s High Tax Rate

Link: https://www.hoover.org/research/bipartisan-opportunism-blame-californias-high-tax-rate


A current example of California’s bipartisan capitulation to public employees is OPEB—formally, “Other Post-Employment Benefits”—chiefly, health insurance for retired employees and their dependents costing the state $10 billion per year. Those benefits are provided even when the retiree or dependent has another job that offers insurance, is covered by Medicare, or is entitled to premium support from the Affordable Care Act.

No other state in America showers such subsidies on retired employees, who are already entitled to the highest pensions in the land. But both parties have been obstacles to OPEB reform because both fear retribution from government employee unions. If you have any doubt about that, check out donations to legislators on both sides of the aisle.

Author(s): David Crane

Publication Date: 12 March 2021

Publication Site: Hoover Institution at Stanford University