There’s a bill in Congress that opponents say would create headaches for public pension managers and could make it harder to finance infrastructure development. So far the measure has sat quietly in committee. But that’s no reason to brush it off, says one policy expert.
“People should take this seriously,” says Jeff Hurley, a policy analyst for the National Conference of State Legislatures. “The federal government is looking at the unfunded liability of state and local [governments] and connecting that to [how] those governments serve the common needs of constituents by way of infrastructure. It is very scary.”
The bill—the Public Employee Pension Transparency Act (PEPTA)—would require state and local governments to file annual reports with the Treasury Department disclosing how they calculate their unfunded pension liabilities. Sponsored by Rep. Devin Nunes of California, the measure requires governments to use a rate of return pegged to a Treasury rate of 4 to 5 percent, instead of the more widely used 7 to 8 percent return rate. While not mandatory per se, the bill threatens to remove a vital infrastructure financing perk: Governments that don’t participate couldn’t issue municipal bonds tax-free.
Rep. Paul Ryan, who chairs the House Budget Committee, and Rep. Darrell Issa, who chairs the House Committee on Oversight and Government Reform, joined PEPTA in April as co-sponsors. Since then, eight more representatives have signed on and a companion bill has been introduced in the Senate.
This year marks the third time Nunes has introduced PEPTA, and he likely won’t let the issue die. “He wants this to go somewhere,” says Jack Dean, founder of the website Pension Tsunami, which takes a critical look at public pensions’ mounting liabilities. “This problem is not going away. It’s only going to get bigger.”
PEPTA opponents say the bill’s proposed accounting methods and requirements would add redundant work on top of other pension reporting changes that are already taking effect. New Governmental Accounting Standards Board reporting requirements, for example, now require that plans apply a market rate of return (typically 3 to 4 percent) to any portion of their plan that’s not funded. The change should have little impact on well funded plans, but it will exacerbate the pension problem for poorly funded ones.
It’s unlikely lawmakers would move on the measure in the waning weeks of this year, but pension reform could become a front-burner issue in 2014. That’s what happened this past summer, when Detroit’s bankruptcy brought attention to public pensions. The city’s $18 billion in debt included $3.5 billion in pension liabilities, and those skeptical of current public pension plan reporting quickly seized on Detroit as the latest example of a broken system. A week after the filing, Sen. David Vitter of Louisiana moved forward on a bill to bar federal bailout of any city, state or county. His attempt failed, but it should put states and localities on alert, says Hurley.
“We saw increases in pension legislation and [related] amendments after Detroit,” he says. “There’s a worry that PEPTA could be part of a bigger measure.”