Steve Malanga from the Manhatten Institute published a reminder today about the “squeeze” that public pensions are placing on local governments all over the United States (see Wall Street Journal, “The Local Government Pension Squeeze.”) . All the promises made but not funded are coming home to roost.

Public pensions, a hot national topic, were of great interest here in Minnesota this last session but they did not make the legislative priority list (except for the now in-doubt consolidation of the old Minneapolis Police and Fire funds into state-run PERA which would just add more retirees into a poorly funded system).

Pensions are  a bi-partisan problem; it will take a bi-partisan investment of serious political capital to change course in Minnesota. The GOP will have to make reform a priority because the DFL will surely not taking the lead. The irony of public pensions is that the DFL has the backing of the unions because it champions their cause but the pension math is largely smoke and mirrors.

Does the DFL really care about public employees or does it just care about union help to get elected? Are public pensions really a secure retirement system for our public employees? In order to make them secure, a much greater investment is required—this will come at an enormous cost to other budget priorities (which is why Minneapolis wants to off-load its old pension funds onto state taxpayers). This is the point of Steve Malanga’s article. The democratic mayor of New Haven calls worker wages and benefits “the Pac-Man of our budget, consuming everything insight.”

Members of both parties want to believe that they handled pensions in 2010-–they felt soothed by reassurances coming from the pension administrators that the hard work was done in 2010 and that the market would recover and lead us out of deep, multi-billion dollar unfunded liabilities. We think the 2010 Omnibus bill was a great, bi-partisan start but it just tweaked the old system. There was no fundamental change to how we fund public pensions.

We conducted many, many educational sessions with interested members of the House and Senate last session but the leadership was not ready to take this up–we focused on explaining the size of the problem and why the assumptions used by Minnesota’s pension funds are just “actuarial fairy dust”.

Rep. Morrie Lanning, who chairs the Legislative Commission on Pensions and Retirement (LCPR), has promised to take up “the big issues” in the interim between sessions. ¬†Lanning was the mayor of Moorhead for years; we are optimistic that his background will make him a realist. We’ll continue to be there to educate legislators and thought leaders to insure that the depth of the problem is understood.

With all the other budget issues this last session (still unresolved as of this morning) along with new GOP leadership (and lots of impressive freshman), the GOP is still getting used to governing—and we have a governor who is deeply committed to the status quo. Unlike governors all over the country, including Gov. Cuomo of New York, Dayton has not signaled any interest in tackling pensions. In fact, I cannot think of any area that the governor has targeted for reform or change. All the ideas for “reinventing” state government are coming from the GOP.

So public pension reform, along with tax reform (including tax expenditures) is not part of the budget fight this month but certainly must be part of the long-term solution to state finances.