By FRANK KEEGAN — Happy Fourth of July, beleaguered taxpayers. Get out your checkbooks to start paying trillions of dollars for public worker retirement benefits. The secret debt politicians and union bosses ran up is so huge there is no way out but massive service cuts and tax increases already passed without our consent.

Certainly state and municipal pension funds cannot earn their way out the pit politicians and Wall Street dug them into over the past five years. Census data released Thursday prove it.

 

And political rigging of the books to defer contributions plus interest onto future taxpayers is just making the fiscal abyss deeper.

 

According to a recent study by Robert Novy-Marx and Joshua Rauh for the National Bureau of Economic Research, right now we are on the hook over the next 30 years for “a tax increase of $1,398 per U.S. household per year, above and beyond revenue generated by expected economic growth. In 13 states the necessary increases are more than $1,500 per household per year, and in five states they are more than $2,000 per household per year.”

 

That does not include trillions more for promised retiree health care state and local governments have no money to pay.

 

Anyone who thinks stock market gains will avert disaster should take a look at the Census numbers for the top 100 state and local pension plans as of the end of March. That represents about 85 percent of total state and local pension plan holdings.

 

Even after three consecutive quarters of gains and a year-over-year increase of 10.2 percent, funds are more than $1 trillion short of where they promised to be.

 

Governments don’t invest a dollar for every dollar in future pension benefits public workers earn. They invest a lot less assuming they can make enough on investments to get the difference.

 

When — not if — they blow it, they just count on sticking it to taxpayers. These latest pension data show fund managers are increasing risk, with more than 50 percent of investments in “Corporate Stocks” and “International Securities,” in an effort to get promised returns. That means when — not if — the next downturn hits, public pensions will end up even deeper in the hole.

 

The problem is leaders cheat on accounting — any homeowner or executive who kept books the way they do would go to prison — to push real costs off until after they have fled the scene of their crimes with the fortunes they make while in public service.

 

Extrapolating from the latest census data proves pension plans were on risky ground before the recession, ground that collapsed under them and buried them so deep there is no chance of escape.

 

Check the numbers. To average an 8 percent annual return from 2006 through 2035, funds would have to get 9.6 percent every year. That means never another market downturn, never even a single investment mistake.

 

But even if that miracle happened and everything worked out great by 2035, taxpayers still would have to pump more than $1 trillion into the system every year in between just to make good on the investments.

 

These are the same taxpayers who lost jobs, 401(k) plans, homes, any hope of college for children and certainly any slim chance at a pension from caring businesses in the private sector.

 

When you compound other factors such as benefit increases and actuarial calculations, the debt gets even bigger.

 

In their 52-page study, Rauh and Novy-Marx put it at an average of $1,398 per household per year for 30 years on top of all other taxes and tax increases.

 

They found that state and local governments still are promising pension benefits at a rate higher than they are setting aside money to pay them.

 

If leaders had the guts to impose a “soft freeze” on all defined benefit pension plans and switch to 401(k)-style defined contribution plans with Social Security, the average additional tax obligation would only drop to $1,223 per household every year for the next 30 years. An unlikely “hard freeze” similar to what many private sector workers suffered would cut the additional average tax increase to $805 per household per year for 30 years.

 

All the numbers get worse when they include reality-based calculations for economic growth disruptions caused by tax increases and service cuts.

 

If the false promises and deferred costs of public pension plans were the only hidden factors dragging down state and local governments, the catastrophe would be bad enough.

 

They are not the only hidden factors. The Government Accountability Office determined even before the crash using incomplete data that state and local governments in aggregate must “immediately” begin cutting real costs more than 12 percent a year “each and every year for the next 50 years.” Governments are not doing that.

 

The result truly will be catastrophic in some states. As Novy-Marx and Rauh point out:

 

“This paper has a number of implications for household finance. First, over the next several decades, U.S. households face the prospect of substantial increases in tax burdens at the state and local level, likely combined with cuts in public services, particularly in the states that have the largest unfunded liabilities. Second, states that will not have to devote much additional revenue to this problem may in fact benefit. Taxpayers may leave the states that are the most burdened by the legacy liabilities and look for places with lower taxes and better public services. This sorting is likely to further increase the burden on states with the largest unfunded liabilities. Third, in states where the burden is large relative to revenue, there is likely an increased danger of a municipal debt crisis if the holders of public debt lose confidence in the ability or willingness of taxpayers in the state to foot the bill for legacy liabilities.”

 

This Fourth of July is a perfect time for every citizen – burdened private sector and betrayed public sector – to declare our independence from leaders who tax us and future generations in secret without our consent.

 

We must demand honest accounting and plans, no matter how painful, for relief.

 

Frank Keegan is a national editor for The Franklin Center for Government and Public Integrity, watchdog.org and statehousenewsonline.com . Any disgusted public employee, journalist, activist organization or citizen watchdog who wants help exposing government waste, fraud and abuse may contact him at: frank.keegan@franklincenterhq.org

 

For a comprehensive primer on state and municipal government pensions, check sunshinereview.org .