More Bonds? Not with Maine’s Ballooning Unfunded Retiree Liabilities

Read the full report | As Mainers consider the June 8 questions to approve $108.3 million in new state bonding, they should take into account that Maine’s pension and retiree healthcare system for government employees is already unsustainable and, as of June 30, 2008, underfunded by nearly $5.1 billion. The state is reporting a preliminary estimate for the 2009 pension liability which has grown from $2.9 billion to approximately $3.995 billion. Put simply, the assets put in reserve to meet future benefit obligations are simply not enough.

More disturbing, however, is that the stated unfunded pension liabilities are being dramatically underestimated. The problem revolves around the ?discount rate? used in the actuarial analysis which is unrealistically high. Two economists find that using more realistic, lower discount rates yields estimates for Maine’s total pension liability increases from $13.7 billion to some-where in the range of $14.9 billion to a whopping $24 billion. In other words, Maine’s pension liability may equal up to 50 percent of the Gross Domestic Product (GDP)—the 8th highest pension liability as a percent of GDP in the country.

Taking pension assets into account, Maine’s $2.9 billion unfunded pension liability increases to somewhere in the range of $4.1 billion to $13.2 billion. In comparison, Maine’s total debt, including general obligation debt, totaled $5.3 billion in 2008. Therefore, Maine’s maximum unfunded pension liability is nearly three times larger than traditional debt.

Unfortunately, higher unfunded liabilities means that current annual contributions are insufficient to meet future benefit obliga-tions. Maine policymakers have two choices: reduce spending/benefits or raise taxes to pay for the added shortfall. Recent economic studies, at the international, national and state-level, show that best route economically is to reduce spending/benefits. Additionally, before any new debt is approved, Mainers should insist that legislators deal with these ballooning unfunded retiree liabilities.