David Eager laughed.
The executive director of the Kentucky state retirement plans says he tries not to get involved in politics — which is just as well, given his job.
But when I asked him if his state’s senior senator, Mitch McConnell, was throwing stones in glass houses with his attacks on “blue-state bailouts” — well, that’s when Eager suddenly seemed to find things pretty funny.
Two weeks ago Mitch McConnell, the senate majority leader and the most powerful Republican on Capitol Hill, sparked a furor when he said he opposed further federal aid to the states during the coronavirus crisis, and suggested they file for bankruptcy instead.
“I would certainly be in favor of allowing states to use the bankruptcy route,” he told conservative radio host Hugh Hewitt. “There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations,” he added.
In case there was a doubt who he meant, his office later clarified this was about “stopping blue state bailouts.” We’re talking big Democratic run states with big state pension problems. (The one most commonly referred to is Illinois)
Most of the furor focused on the idea of states filing for bankruptcy. Some constitutional scholars said they can’t, actually, though they can default on their debts.
But that’s not all.
Guess which state in America has the worst funded state pension plan? Guess which state has a state pension plan in such a crisis that according to its executive director, it has to stay heavily invested in bonds because it simply cannot handle a major market downturn?
Illinois? New York?
Nope. Kentucky. McConnell’s own state.
Which is why I called the executive director, and I expect that’s why he laughed when I mentioned the irony.
“I try not to get involved in politics,” Eager tells me. “My job is to administer the plans.”
Eager confirms that the state pension systems are in crisis. “There’s no question that we are very poorly funded,” he says. “The actual number of the unfunded liabilities was…$25.8 billion,” he says. “And we also have a retirement insurance fund, and it has another $3.2 billion in unfunded [liabilities].”
The fund has actually done pretty well in the turmoil of the past year because its funding crisis had already forced it into bonds. “We had to get very liquid, and we had to be in very conservative securities,” says Eager.
As of the last fiscal year, he says, the funding level was 32.8%. In other words, they have about 33 cents in the plan for every dollar of liabilities. To put that in context, a study by Pew said the average was about 69%.
One of the five individual plans is “13.4% funded,” Eager added.
Thirteen percent? That wouldn’t be enough as a down payment on a house.
The underfunding, he says, is no sudden crisis. It’s been developing “for the better part of two decades,” he says. The state government just put too little into the pension every year. “We were ‘negative cash flow’ for 17 years,” he says. Eager, to be clear, came from the private sector and only took over in 2016.
The Tax Foundation, a pro-taxpayer think tank in Washington, D.C., recently ranked the 50 state pension plans in terms of their fiscal health.
There’s no question a few of the Northern, “blue” states are in pretty bad shape. Illinois ranked 48th and New Jersey 49th.
But coming in at number 50, the bottom of the pile, is Mitch McConnell’s Kentucky.
Granted, the total numbers are bigger in some Northern states. They have more people and much bigger economies. But nobody else, nobody, is down at 33% funding.
The overall state picture isn’t much better. The Mercatus Institute at George Mason University ranks Kentucky 40th or below on most of its measures of fiscal health.
And here’s the twist: Kentucky is in this condition even though it is being generously some might say massively — subsidized by federal taxpayers in other states.
No, really. The Rockefeller Institute recently ranked the 50 states by how much they were mooching off Uncle Sam.
The biggest donor states were in the high-cost, high-income, high-productivity economic engines of the northeast: Residents of New York, New Jersey, Connecticut and Massachusetts all pay way more in federal taxes than they get back in federal spending.
And who’s the biggest taker? If you said Kentucky, you’d be wrong.
Virginia and Maryland are numbers one and two. Obvious, when you think about it: The suburbs of Washington, D.C.
Kentucky…is number three.
According to the Rockefeller Institute, Kentuckians are getting about $10,000 more per person from the federal government than they’re paying in taxes.
McConnell’s office declined to comment.
To be fair, Sen. McConnell doesn’t work in the Kentucky state house. He works in the U.S. Senate. The fiscal crisis in his home state is not his responsibility or his fault. (The net mooching off Uncle Sam is another matter.)
But it’s all run by the same political party — his party — so it’s not like the people involved are total strangers.
And now he is calling for an end to “bailouts” of moocher states, and “bankruptcy,” or default, for states with stricken pension plans.
Sen. McConnell: Be careful what you wish for.