Taxpayers and public employees may be on the hook for more than $1 trillion – probably another trillion more — in underfunded, mismanaged retirement funds for benefits falsely promised by politicians and union leaders, but that doesn’t mean everybody ended up losing.

Investment advisors and so-called “placement agents” made billions of dollar off deals that only served to push public pension and retiree benefits funds deeper into the abyss.

Now, according to the New York Times, officials are increasingly betting on more risky, high-cost investments in a desperate effort to get out of trouble, with the added benefit that their cronies will take even more money out of taxpayers’ and employees’ pockets.

Public employees, taxpayers and journalists can dig through open public documents to find out what happened to the money and hold accountable those bound by law to safeguard it.

Don’t let them dare say they didn’t know better. A Government Accountability Office report in 2008 – two months before the markets crashed – warned explicitly what pension fund managers already are supposed to know:

“Recent reports have noted that some plans are investing in ‘alternative’ investments such as hedge funds and private equity funds. This has raised concerns, given that these two types of investments have qualified for exemptions from federal regulations, and could present more risk to retirement assets than traditional investments.”

In some states, such as Maryland, thoughtful lawmakers removed fee caps for such risky investments so their buddies could take more worker and taxpayer money off the top.

For example, the Calvert Institute reported in 2006 that non-traditional pension fund investments increased risk and lowered returns, while costing more. Two years later, the General Assembly responded by repealing the 1.2 percent fee cap for such investments.

According to Calvert, “This statute boldly declares: ‘THE BOARD OF TRUSTEES IS NOT LIMITED IN THE AMOUNT OF INVESTMENT MANAGER FEES THAT THE BOARD OF TRUSTEES MAY PAY AS NECESSARY FOR EXTERNAL REAL ESTATE OR ALTERNATIVE INVESTMENT MANAGEMENT SERVICES’.”

Last year, when Maryland pension funds dropped more than 20 percent – we won’t know the true toll until the end of this year – “investment advisors” and “other investment service fees” took out more than $113 million, a $20 million or 21 percent increase from the year before.

In a decade, despite Maryland governments squeezing $7.5 billion out of taxpayers and $2.9 billion from public employees, net assets dropped from $3 billion in the black to a deficit of $8 billion, and the unfunded liability grew to $18 billion.

And that liability is based on assuming 7.75 percent growth every year in the future.

If funds in the Maryland pension system had grown over the last ten years at the 7.75 percent rate officials assume in their calculations, it would be worth almost $70 billion instead of $37 billion. All the while fees increased.

Check every state. Ask what happened to the money. See who got it and cross check against campaign contributions.

This catastrophe was committed to one degree or another in virtually every state by Republicans and Democrats. They ignored the few voices raised in warning.

For example in bankrupt Oklahoma, capitolbeatok.com reporter Patrick McGuigan found a 2007 letter from the Pension Oversight Commission that states, “Following years of calls for action to address the serious financial crisis in Oklahoma’s pension systems, we have an opportunity to take action … The fact is that the problem can no longer be ignored.”

State politicians didn’t ignore it, they made it worse.

Now many states want to invest more of the peoples’ money at higher risk and greater cost to try to get out of trouble. Bet on them also trying to raise taxes to pay for their folly.

Citizens, public employees and journalists can stop them by exposing the depth of the crisis in every state.

A good place to start is the Comprehensive Annual Financial Reports – CAFR — for state and local governments and each pension fund. Look at the Required Supplemental Information that lets politicians keep the real numbers off the books.

A list of state CAFR links is at the Truth in Accounting Web site.

The GAO report has those links plus links to CAFRs for 39 local governments.

A conservative overview of the crisis as of June 30, 21008, is the Pew Charitable Trusts Trillion Dollar Gap report, which also lists State-by-State Scores.

Contact the Franklin Center for Government and Public Integrity for help in digging through the reports.