| May 2, 2010

New Studies Spotlight Oklahoma's 'Number One Financial Threat'

When I joined the state capitol press corps last fall, I never would have suspected that coverage of pensions and retirement plans would take so much of my time. But these issues have acted like a magnet on my attention span. Perhaps it's because I'm a grandfather.

The Institute for Truth in Accounting (IFTA) recently released a "Financial State of the State" report for Oklahoma. According to the Northbrook, Illinois-based group, "the numbers are not good and they are getting worse every day. Oklahoma has only $3 billion to pay $19.4 billion of bills. Each Oklahoma family's share of the state's financial shortfall is $14,600."

According to Sheila Weinberg, IFTA's founder and CEO, "To truly balance the state's budget, the governor and Legislature should not push the payment of our current bills into the future. And a state budget is not balanced if the pension funds are not adequately funded."

Concerning pension and retirement systems, IFTA said, "years of overpromising pension benefits, while shortchanging the funding of the pension systems, have resulted in the state's pension funds being underfunded $14.8 billion. For the state's fiscal year that ended June 30, 2009, only $1 billion was deposited, even though the pension systems' actuaries calculated that a minimum of $1.3 billion should have been contributed."

State Treasurer Scott Meacham, in a letter to the governor and legislative leaders dated April 12, 2007, said, "The biggest problem exists with the biggest pension fund-the Teachers' Retirement System-where actuaries indicated that nearly three times more money than is currently received is needed to properly fund the system."

Meacham wrote then, "If this problem is left unaddressed, the system will eventually require a cash infusion of staggering proportions to meet current payment obligations. This could result in the need for the state to raise taxes or dramatically reduce funding to vital state programs. The ultimate impact of continued inaction will be borne by citizens of the state of Oklahoma."

Meacham recommended the issue be made a priority. For a couple of years, government officials worked to, as he put it then, "address the number one financial threat the state is facing."

On March 9, 2010, in response to a question from CapitolBeatOK, Treasurer Meacham commented anew on these issues: "By far the worst of all our systems in terms of unfunded liability is the teacher retirement system, and in fact it is one of the worst in the entire country. It absolutely does pull down our overall numbers."

Meacham expressed some sympathy to directors of other Oklahoma state retirement and pension funds that are comparatively better funded. But he added, "if you are a financial analyst your job is to look at the entire state, to look at [pension/retirement programs] as a group because they are all, put together, a long-term obligation. These are long-term obligations of the state and there's really no choice but to consider them together."

"When it comes to the pension and retirement liabilities, it's really frustrating. It's a really serious problem," adds House Speaker Chris Benge. "Those of us at the capitol now are having to deal with decisions made decades ago. We need to try to stop the bleeding."

Benge continued, "No more unfunded mandates, that's a really good place to start. We made that decision in the Legislature four or five years ago and we've stuck to it. We also set the objective to get to an additional $60 million a year in direct deposits into the retirement system. After 16 years, for example, that would bring the system to 80 percent funding, but that was before the crash. Bottom line is we have to be committed-to be, and to remain, disciplined."

IFTA was critical of past practices in Oklahoma, saying "for decades governors and legislators have claimed balanced budgets, but now the state is more than $1 billion in debt." Roger Nelson, chairman of the IFTA board of directors, observed, "You may ask how this can happen. Well, it all depends on how you count. Oklahomans need to demand that their elected officials use honest accounting to calculate a balanced budget."

This year, the State Office of Finance reported $13.8 billion of net assets. The Institute's review of actuarial reports revealed $14.8 billion of off-balance-sheet pension liabilities. The Institute says there are three questions that should be asked of legislators and the governor to determine whether or not the budget is actually balanced: "Will our bills be paid on time? Will you borrow money? Will you pay the required pension contributions?"

Weinberg warned, "Debt has become our country's drug of choice, in the states and nationally. Until we are honest with ourselves about how much we really owe, we can't begin to solve this problem."

Legislators in two states, Florida and Illinois, have introduced the Truth in Accounting Act (TAA) in their respective states. As Weinberg explained the TAA in an interview with CapitolBeatOK, "the Truth in Accounting Act would require states to disclose the true costs of pensions and health care systems. During their budget processes, states would be required to prepare a simple-to-read balance sheet, which would include the unfunded retirement plans' liabilities. Then they would be required to illustrate what would happen to the state's financial condition if the proposed budget was enacted. The legislation would also require states to work with actuaries to calculate the costs of pension benefit enhancements before legislators vote on these changes."

The Oklahoma "Financial State of the State" is available at two web addresses tied to Weinberg's group: and The group's study provides an accounting by outlining the financial situation of the state, including unfunded liabilities to the state's pension systems.

Weinberg's analysis amplifies other criticisms of Oklahoma's unfunded mandates made earlier this year in a report from the Pew Center for the States. The Pew study, "The Trillion Dollar Gap," critiques Oklahoma government for increasing pension and retirement benefits in the 1980s and 1990s while not boosting deposits into the state-administered pension programs.

According to the Pew study, Oklahoma's "seven state-administered pension systems had a combined funding level of 60.7 percent in fiscal year 2008, a total liability of $33.5 billion and an unfunded liability that was 219 percent of total payroll. During the 1980s and 1990s Oklahoma increased benefits, but did not boost contributions enough to offset those increased liabilities."

Further, "By pushing the costs into the future, the state's actuarially required contribution has risen to almost 21 percent of payroll, annually. In addition, the state has lagged in making the required contributions, so funding levels would likely have continued on a downward path even without investment losses."

Breaking down the $33.5 billion, and separating out the 40 percent that is unfunded, the state's shortfall, as of 2008 data, is a bit under $13.2 billion. The required annual contribution is $1.245 billion, but the most recent actual contribution was only $986 million, the Pew report details.

And just last month, yet another report-this one from the Manhattan Institute and the Foundation for Educational Choice-found that teacher pension liabilities for all 50 states now total almost $1 trillion, roughly triple the cost of what state officials have on their balance sheets. And sure enough, Oklahoma ranks among the five worst states.

In "Underfunded Teacher Pension Plans: It's Worse Than You Think," authors Josh Barro and Stuart Buck reveal the major disparity between what states report and the true value of unfunded liabilities for teacher pensions. States put the price tag on teacher pension liabilities at $332 billion. The study shows the red ink is actually $933 billion when applying private sector-style discounting.

"States are already caving under the pressures of the recession and this is bad news for governors and state legislatures," said Robert Enlow, president and CEO of the Foundation for Educational Choice. "Every dollar in the red ink column for pensions is one less dollar that is used to educate children."

While some might think the new study restates what has already been learned, the truth is that this report is the first to focus on the ways states and cities aggressively "discount" or underestimate the cost of paying future teachers' retirement benefits. The most underfunded pension programs are in West Virginia, Illinois, Oklahoma, Indiana, and Kansas.

"This report makes clear that it will be even more difficult than previously thought for states and school districts to honor pension benefit promises to teachers-without putting actual classroom services at risk," says Howard Husock, vice president of policy research at the Manhattan Institute.

In sum, these various reports point up the bad news about state government retirement and pension plans in general, and about Oklahoma's plans in particular.

Certainly, it's past time for Oklahoma's leaders to get serious about this.

Patrick McGuigan (M.A. in history, Oklahoma State University) is editor of CapitolBeatOK. He works under a contract with OCPA to provide incisive, accurate, and timely news coverage of Oklahoma state government. Visit for in-depth reporting on the latest developments in state government.

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