Back in 2003 and 2004, the state of Wisconsin and many of its municipalities faced growing pension liabilities. To deal with that, the state essentially punted the problem down the road by borrowing $1.8 billion. It put about $700 million into its pension system and used another $782 million to finance payoffs to retiring state workers who had accumulated unused vacation time. Other governments in the state joined the pension debt rush, including the Milwaukee Public Schools, which borrowed $165 million. It's important to keep those numbers in mind amid reports that Wisconsin has the best-funded pension system in America.
The recent Pew Center for the States' report on government pension funds has gathered some notoriety for Wisconsin as the nation's only fully-funded pension system. Opponents of Gov. Scott Walker's reforms last year had even pointed to high funding levels in Wisconsin as a reason not to have workers contribute more to their pensions. But Walker, who as county executive of Milwaukee County got a first hand view of the local pension problem in Wisconsin, knew better. His reforms certainly helped to shore up the system.
But don't forget that pension borrowing is a liability, too. And it's a more demanding one over the short term than underfunding of a pension system. As Fitch noted back in 2003 about Wisconsin's borrowing, issuing pension debt converts a "soft" liability, namely pension underfunding that can be dealt with over time, into a "hard" liability, one that requires a schedule of payments to bondholders. Wisconsin's pension borrowing increased state debt alone by 25 percent.
All of this is relevant because states and cities faced with outsized liabilities and unwilling to make substantive reforms of their systems have been boosting pension borrowing, as the LA Times noted in March. There are many reasons why pension borrowings are risky, as the Center for State and Local Excellence in Government noted in this report.
Wisconsin deserves credit for making full pension contributions in its budget since 2005 and increasing contribution rates for government workers. But no assessment of the fiscal condition of its pension system is accurate without also noting how the state and its municipalities borrowed liberally to fill their coffers in the first place, and are still paying off that debt, which shows up on the balance sheets of state and local governments, if not in the accounting of the pension system.
But don't forget that pension borrowing is a liability, too. And it's a more demanding one over the short term than underfunding of a pension system. As Fitch noted back in 2003 about Wisconsin's borrowing, issuing pension debt converts a "soft" liability, namely pension underfunding that can be dealt with over time, into a "hard" liability, one that requires a schedule of payments to bondholders. Wisconsin's pension borrowing increased state debt alone by 25 percent.
All of this is relevant because states and cities faced with outsized liabilities and unwilling to make substantive reforms of their systems have been boosting pension borrowing, as the LA Times noted in March. There are many reasons why pension borrowings are risky, as the Center for State and Local Excellence in Government noted in this report.
Wisconsin deserves credit for making full pension contributions in its budget since 2005 and increasing contribution rates for government workers. But no assessment of the fiscal condition of its pension system is accurate without also noting how the state and its municipalities borrowed liberally to fill their coffers in the first place, and are still paying off that debt, which shows up on the balance sheets of state and local governments, if not in the accounting of the pension system.
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