PARTICIPANTS

Josh Rauh, Michael Boskin, Darrell Duffie, John Gunn, Matthew Gunn, Eric Hanushek, Dan Kessler, Stephen Langlois, Ron McKinnon, Monika Piazzesi, John Powers, John Raisian, Leena Rudanko, Martin Schneider, Ken Scott, George Shultz, John Taylor, Ian Wright

ISSUES DISCUSSED

Josh Rauh discussed his work on the funding of state and local government liabilities, including the size of the unfunded liabilities and potential solutions to the problem of funding them.

Rauh began by explaining that flawed budgeting procedures for deferred compensation and benefits on the part of state and local governments are what have led to budget problems for these governments and such large unfunded liabilities. Specifically, by discounting future benefits at higher discount rates than is appropriate, governments make it appear that the present value of these liabilities is lower than it actually is and that they need allocate less funding to simultaneously account for these liabilities and run a balanced budget.

Rauh then went on to discuss the size of the unfunded pension and health promises to state and local government workers. With the incorrect discount rates currently used, unfunded pension promises alone are estimated at $0.76 trillion, while using the Treasury curve to discount these liabilities raises this estimate to $4.5 trillion. The latter estimate amounts to $39,500 in unfunded liabilities per U.S. household. Additionally, since many state and local governments are running deficits on an ongoing basis, these amounts are continuing to grow.

Next, Rauh discussed actions some governments have taken in response to this issue, and the potential for changes in the accounting and funding of these liabilities. While multiple states have constitutional clauses restricting the diminishment of pensions, other states have made legal changes that change the priority and guarantee of future pension payments. Rauh concluded by proposing that defined contribution plans be introduced by governments, in place of defined benefit plans. Additionally, he recommended future liabilities be discounted at appropriate rates so governments cannot claim balanced budgets when they do not have them. Alternatively, governments could give employees a menu of reforms to choose from to introduce risk-sharing, or offer lump sum buyouts. 

Upcoming Events

Sunday, July 13, 2025 9:00 AM JST
Aloha Tower, Honolulu, Hawaii, 1930s, Dennis M. Ogawa Nippu Jiji Photograph Collection, Hoji Shinbun
ヒト・モノ・カネの移動からみた日本帝国と環太平洋世界: 日本・アメリカ大陸関係史のフロンティア
共催:東京大学大学院法学政治学研究科 附属近代日本法政史料センター 明治新聞雑誌文庫 スタンフォード大学フーバー研究所 University of Tokyo
Sunday, July 13, 2025 9:00 AM JST
Aloha Tower, Honolulu, Hawaii, 1930s, Dennis M. Ogawa Nippu Jiji Photograph Collection, Hoji Shinbun
Traversing The Socio-Economic Frontiers Of The Empire Of Japan And The Pacific World
Co-hosted by the Center for Modern Japanese Legal and Political Document, Faculty of Law, Graduate Schools for Law and Politics, University of Tokyo… University of Tokyo
overlay image