| Sept 26
Sept 26 State and local governments facing
pension liabilities that already total in the trillions of
dollar will be forced to seek bailouts from the U.S. government,
Republican Party Congressional staffers said in a study released
on Wednesday, as they warned that such bailouts could have dire
Republican staff of the U.S. Congress Joint Economic
Committee said with state debt topping $4 trillion, including
$2.8 trillion in unfunded pension benefits and at least $627
billion for retiree health care, states may buckle under the
pressure to raise taxes, cut spending and take other measures to
pay off their debt.
"Despite the massive federal debt and fiscal imbalances, it
will be hard for Washington policy makers to deny sympathetic
retired teachers, police and firefighters after a previous
Congress bailed out Wall Street and U.S. automakers," the
Republican staff commentary said.
But it warned that any federal bailout would test the
political fabric of the nation, citing the tensions in the
European Union over the Greek bailout as a similar situation.
In a federal bailout, taxpayers in U.S. states now keeping
up with their pension liabilities would be paying for states
with the worst-funded public retirement systems, the study said.
Because of the difficulties faced in reforming public
pension systems -- including union opposition to any reduction
in pension and other benefits and the protections provided by
law and even by state constitutions -- the study said that a
different approach should be taken.
It recommended that the U.S. government reduce its potential
aid to states in proportion to their unfunded liabilities until
their pension funds become solvent over a specific time frame.
It also suggested that the ability of states to issue
tax-free bonds could be revoked if their pension funds are
expected to go broke within 10 years.
"As undesirable as a federal bailout of state pensions is,
setting forth the terms and conditions of a potential bailout
may be exactly what is needed to prevent one from happening,"
the study said. "If the states understand how severe the terms
of a federal bailout would be, they are more likely to take
action now to fix their unsustainable pensions."