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State leads in public payroll: Huge pension increase looms

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By Harold Morgon

To fully fund New Mexico’s public sector pension obligations, both state and local, within 30 years will require an immediate tax increase of $1,756 per household per year.
That puts us ninth nationally in what might be called the ranking of how well states have ignored their pension obligations. That statement is a little overly nasty.
The Legislative Finance Committee and others have a fair record of raising the issue over the past few years. But the accomplishment is little.
Five states will have to cough up more than $2,000 per household per year. They are, in order, New Jersey, the champ at $2,475; New York; Oregon; Wyoming; and Ohio.
The problem is accounting, not cash, for the moment. As with any investment, one picks a rate of return, an annual percentage expected to be earned on the cash invested. If the idea is to have, say, $1,000, in the future, an amount of money is set aside and invested.
If it happens, the rate of return assumed will turn the original amount into $1,000. The flaw is that the assumed rate of return has to make sense, if there is to be a reasonable chance of it happening.
The usual rate of return used in public pension accounting is eight percent. That doesn’t make sense, probably never has. It certainly doesn’t today.


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