Unfunded Pension Liabilities……what a tangled mess

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We have done some more research on the issue of unfunded pension liabilities, and at the risk of ‘getting too deep into the weeds’, we will offer some explanations of what we have discovered on the Lake County Auditor’s website.

First up is the Balance Sheet as of 12/31/16 for all of Lake County.  A Balance Sheet provides the financial strength of an entity at a given point in time. It lists the assets, what is owned by the entity, and liabilities, what is owed by the entity.  The Net Position, called Retained Earnings in “for profit” enterprises, is the difference from what is owned versus what is owed.  The Unrestricted number, listed in the Net Position section, reflects assets that  are free and clear of any obligations.  If the number is negative,  it means that the entity does not have enough assets to cover it’s  obligations.  This is known as being “upside down”.

Lake County Balance Sheet

The following are details of the change in governmental accounting reporting standards for recording pension liabilities.  It gets a bit complicated, but we have underlined what we thought were the important points that needed to be understood by all Ohio citizens.  This issue applies not only to Lake County, but all of Ohio.

Pension Liability explanation

We have underlined the important points for you to remember.

  1. “In Ohio, there is no legal means to enforce the unfunded liability of the pension system as against the public employer.”
  2. “In the event that contributions, investment returns, and other changes are insufficient to keep up with required pension payments, state statutes do not assign/identify the responsible party for the unfunded portion.”

    So what does all this mean to the average taxpayer?

    Prior to the new accounting reporting requirement (GASB 68) public entities, governments or political sub-divisions like Lakeland Community College, reported only annual pension contribution, but this never accounted for the underlying liability of what must be paid out in the future when the employees retire.

    Although there is no written state law that identifies who is responsible, there is a “moral obligation” of the entity to pay the former employees for past services rendered.  The only question is how are these unfunded pension liabilities to be paid.

As we see it, there are only a couple of ways that these obligations can be satisfied:

1.  An increase in some form of taxation, be it an income, sales, real estate, or other hidden tax that is paid by the individual taxpayer or employer.  The political ramifications of this, other than the hidden tax, would be more than the average politician could endure.

2. The State of Ohio covers the unfunded pension liabilities by shifting tax revenue collected by the state from a given line item or department in the State’s budget.  However, the size of the total unfunded pension liabilities for ALL of the various government entities and political sub-divisions must be in the $Billions, so covering this shortfall is not going to be easy. (Note: Lakeland Community College has a $66 million unfunded pension liability)

By reallocating funds from other departments to cover the unfunded pension liabilities, that means that either services to the taxpayers will suffer;  or if the state decides to decrease funding for schools, the local real estate taxes will need to be increased to ensure the schools remain open.

In summary, the Lake County Commissioners can pontificate all they want, and say the unfunded pension liability is not the obligation of the County, or it is just “government math”, but this is a growing and very serious problem.  Unfortunately, the only ones that will pay for this mounting debt, either directly or indirectly,  will be the average taxpayer.

We will say it again:  The politicians are pricing seniors and those living on fixed incomes out of their homes that they have worked all their lives to achieve.  Who is looking out for the seniors? They still have dreams too, unfinished goals they thought they could accomplish in retirement, but government has turned them into nightmares!

 

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