Governor’s Office Blog, 7/12/10

David Crane, Special Advisor to the Governor for Jobs and Economic Growth

After the governor’s pension roundtable discussion last week, a government-employee union issued a statement saying the conference failed to mention the country’s financial crisis.  They must not have been watching, because the roundtable was all about avoiding the accounting and other practices that led to the $1+ trillion failures of Fannie Mae, Freddie Mac, Lehman and AIG and the devastation of retirement accounts of ordinary Americans who aren’t entitled to the guaranteed pensions of public-sector workers.  In fact, much of the discussion centered on Northwestern University Professor Joshua Rauh’s slides showing that accounting practices by state-sponsored pension funds are hiding $3 trillion of pension debt, $500 billion alone in California.  Most sobering was his forecast that CalPERS and CalSTRS, California’s two largest state-sponsored pension funds, will run out of cash by 2027 and potentially even earlier, portending even worse consequences for state budgets already hit hard by billions of excess pension costs, which started their rise well before the financial crisis as a result of under-accounted-for pension debts starting to come due.

Government and boards of directors failed to heed early warnings about Fannie, Freddie, Lehman and other mismanaged financial enterprises. This time we must heed the warnings about state-sponsored pension funds such as CalPERS and CalSTRS.