States of fiscal folly

A wise old saying warns against "borrowing from Peter to pay Paul." But a growing number of states are either already borrowing from government-employee pension funds to pay their bills or moving toward that reckless step. Fortunately, South Carolina isn't joining that foolish trend. But that doesn't mean we don't have serious state-pension challenges of our own.

Friday's Wall Street Journal reported that the new governors of Virginia and New Jersey have proposed freeing up extra cash for their general revenue funds by not fully funding state pension programs. And those are Republicans who are being criticized for seeking deep budget cuts.

Illinois, with a Democratic governor, has been falling short of its full contribution to its five retirement programs for the past few years (see George F. Will's column on today's Commentary page).

More than a dozen other states also are shortchanging pension funds or considering it. The Journal story described the potential consequences:

"In a worst-case scenario, in which a public pension fund was so underfunded that there were concerns it wouldn't be able to pay benefits, a state could resort to taking funding away from schools, social-service programs or other services to fully pay the pension bill. While funds on average remain close to the recommended 80 percent funding level, the ratio is expected to decline further unless contribution levels increase."

And while South Carolina's Constitution forbids taking money out of state employees' retirement program to cover budget shortfalls, Comptroller General Richard Eckstrom has repeatedly warned that the plan is nevertheless threatened by large-scale "unfunded liabilities."

Mr. Eckstrom told us Friday that though the state retirement system "is not at risk of any immediate collapse," it does face a potential 30-year shortfall of $11 billion if the General Assembly fails to fund it at a more realistic -- make that a much higher -- level. He cited the built-in anticipation of an 8 percent return on retirement fund investments (a rosy scenario that most states share) as a continuing threat to the plan's solvency.

Along with the federal government, the governments of every state, including this one, now face a defining fiscal challenge inexorably driven by demographics. Without major overhauls, many government retirement systems at all levels won't be able to cover the ever-rising tabs created by the ongoing advance of the vast Baby Boomer generation into senior citizenship.

And borrowing from state pension plans to pay state bills will only hasten the day that government employees' retirement programs go broke.