RSI Interview with Bob Williams, founder and senior fellow of the Freedom Foundation and Senior Fellow with the American Legislative Exchange Council.  Williams was the founder of State Budget Solutions, which is now a project of ALEC.

Underfunded pension systems are one of the biggest challenges facing state and local budgets, resulting in more than $5 trillion in total U.S. pension debt. In an effort to examine how we arrived in this predicament and what steps can be taken going forward to ease the overwhelming financial burden on governments, the Retirement Security Initiative (RSI) will talk with leading fiscal and pension experts to get their opinion and analysis on the funding crises. The below Q&A with Bob Williams, founder and senior fellow of the Freedom Foundation and Senior Fellow with the American Legislative Exchange Council, is the third in our series.

RSI: How did you become interested in the issue of public pensions? 

BW: As a Washington State Legislator (1978-88), I was one of two state legislators out of 147 legislators who took an interest in state pensions and tried to get my fellow legislators interested in pension reform.


RSI: During your career of working on state budgetary issues, what are the most significant changes you’ve seen in the public pension space?

BW: The great unpublicized success of the higher education faculty’s defined contribution system (higher education faculty in most states have access to a DC pension system) and the many legislators ignoring the growing (more than $5.6 trillion unfunded pension liabilities) crisis.  How has that impacted state governments’ fiscal health?  It is a problem that most legislators ignore, but the day of reckoning is rapidly approaching.  For example, in Chicago Public Schools, 89 cents out of every new tax dollar goes to pay pensions, leaving only 11 cents out of every dollar for the rest of education.


RSI: Can you talk about your recent publication “Unaccountable and Unaffordable 2016: Unfunded Public Pension Liabilities Near $5.6 Trillion” and what was the biggest surprise for you while conducting your research? 

BW: The biggest surprise is how the problem has grown in the past two years – from $4.7 trillion to $5.6 trillion—an increase of $900 billion in just two years.


RSI: In the report, you used three different metrics to gauge the severity of the pension problem across the 50 states: unfunded pension liability per capita, the funded ration and total unfunded pension liability. Can you talk about the first metric, unfunded liabilities per capita, and how that affects taxpayers? 

BW: The longer states delay reforming pensions, the more the unfunded liabilities per capita will rise. For example, in Illinois the per capita unfunded liability has grown from $25,740 in 2014 to $28,200 in 2016 (or $112,800 for a family of four).


RSI: We at RSI think that pension debt is the most challenging issue facing state and local governments, yet it’s not on the radar of most taxpayers or public workers. How can we in the pension reform community do a better job communicating the significance of the problem to these constituencies? 

BW: Communicate (perhaps through videos and other tools) what has occurred in Pritchard, Ala.; Central Falls, R.I.; Washington Park, Ill., and Detroit, showing what happened to retirees when those areas went bankrupt.  Have another video showing how K-12 teachers have to work 10 years in Florida and Texas in order to be vested in the pension system, as opposed to National Education Association headquarters staff who have a defined contribution option available to them.


RSI: Going forward, what are your recommendations to policy leaders that could help them fix their broken pension systems and begin reining in their state or municipality’s pension debt?  

BW: Reality is not negotiable.  More disclosure is required to all legislators showing the key assumptions (i.e. assuming a 7.5 percent annual rate of return; life expectancies; etc.); switching to a defined contribution system for all new employees; recognizing that if you give state employees the facts you can get them on your side. We saw this occur in Arizona with the pension reforms for police and firefighters. Public employees didn’t create the problems – state legislators and public union officials did.