LOCAL

New U.S. Census data show Ohio's pension woes

John Damschroder
Columnist
John Damschroder

In Ohio, 458,372 people receive their income and health insurance from a state pension system suffering from the twin calamities of too little compounding and candor. 

Regular readers of this column know thatthe top executive of three of Ohio’s pension system’s wrote to this newspaper insisting that there is no problem, although no one was so bold as to match Gov. John Kasich’s absurd claim,made on national TV no less, that Ohio pensions, unlike most in the United States, are “rock solid.”

The newly released U.S. Census Bureau data on public pension plans reveal what an outlier Ohio would be if the claims of financial strength made by the governor and pension leaders were actually true. Sadly, Ohio is not outperforming the nation, it is simply making performance claims that are contradicted for the second consecutive year by thefacts reported to the federal government.

The Ohio pension data reveal that payments to the retirees in the system total nearly $7.5 billion more than the payroll extractions from public employees and state and local government, plus the earnings on more than $178 billion in assets. At the same time, the future pension obligation for Ohio grew by nearly $7 billion, putting Ohio more than $14 billion in the red last year, while proclaiming either unique strength or no problems.

In truth, Ohio has a very big problem, compounded by the political determination not to recognize that fact, lest the implications of the issue cause the 1,311,351 citizens with a claim on the assets to awaken with fear and anger over a brewing crisis. 

Between 2014 and 2016 Ohio’s pension obligations grew by $17 billion while the state's pension assets fell by more than $6 billion. In three years the state pensions have added $23 billion to a liability that currently stands at just under 10 percent of the state’s gross domestic product and assumes future investment earnings that the retirement systems have not been able to achieve. 

Moreover, these performance failures have occurred during strong markets.  The pension leaders tell us the $734 million they paid in outside management fees for 2015 provide protection in a down market. I fear that hypothesis will be tested soon with results that make our current situation seem like the good old days.

Ohio has altered the payout formulas and increased the pay-in rates to keep the liability from growing. But charging workers and their employers more for less doesn’t solve the problem when investment earnings lag the market as has been the case for Ohio. 

The state pensions are the functional equivalent of a company with $15.7 billion payroll that is deeply cash-flow negative. In the campaigns for state office that are currently taking shape, this issue needs to be forced into the debate. More than 1.3 million Ohioans are directly affected, and the income they keep or lose is a huge factor in the state's economic ecosystem just as it would be if a huge employer suddenly cut its payroll.

John Damschroder, a Fremont resident who worked in Gov. George Voinovich’s administration, writes about business and economic development in Sandusky County.