Tuesday, February 23, 2010

Accounting rules hide New Jersey’s pension deficits

I have a piece in today's Newark Star-Ledger regarding public pension deficits in New Jersey, which the new Gov. Chris Christie has raised as a major issue for the budget. But, I argue, even the $32 billion shortfall the pensions admit to is a low-ball figure since they use very different accounting methods than private sector plans. Using market valuation methods, which financial economists argue presents a more accurate figure of the liabilities facing the taxpayer, New Jersey is around $145 billion in the hole, equal to around $17,000 for each New Jerseyan (Jerseyite, Jerseyer, etc.).

But if you don't live in New Jersey, don't feel left out. It's just as bad everywhere else. In fact, when you compare the market value of unfunded pension liabilities to state GDP, as I do in an upcoming AEI working paper, New Jersey is hardly the worst-off state in the country. (You'll have to stay tuned to find out who is…)

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