The Red Tape Chronicles/MSNBC

By Bob Sullivan

In New York, a 44-year-old firefighter retires with a $101,000 a year pension, for life.  Near Chicago, a parks commissioner quits and begins collecting a $166,000 pension – a sum sweetened by $50,000 thanks to a one-time retirement year windfall of $270,000. And in California, a former city manager pulls down $500,000 in retirement checks every year.

As outrageous as those sunset stipends may seem, they are merely the most visible piece of what critics of generous government pensions say is a ticking time bomb of debt that is threatening to bankrupt a number of states by the end of the decade.

While the federal debt of $13.7 trillion raises issues of devalued currency, higher borrowing costs for Washington, D.C., and loss of international bargaining power, state debt – much of it driven by exploding pension costs – poses a more immediate risk to the U.S. economy, according to many experts.

Wall Street analyst Meredith Whitney correctly predicted the need for a government bailout of banks three years ago, so people listened in September when she forecast who will be next to beg for a federal bailout: States like California, New Jersey and Ohio. State and local governments have effectively run up huge credit card bills, and soon won’t even be able to make the minimum payments on that debt.  What happens then?  Middle America, Whitney predicted in a report called “Tragedy of the Commons,” might revolt at the idea at bailing out coastal states for years of mismanagement and overspending. 

Crushing debts racked up by these and other states are obvious almost every budget year, when state government shutdowns are threatened and tax increases loom.  But annual budget woes are a drop in the bucket compared to long-term obligations facing these states – particularly their promises to supply pensions and health care to millions of retired workers. Pension talk might not sound sexy, but it should: U.S. states already are short $1 trillion they should have set aside to pay retired workers, according to the Pew Center on the States. That hole could very well drive states to bankruptcy or federal bailout.

As documented in our continuing series on supersized government worker pay, granting supersized pensions seems irresponsible in light of this looming fiscal catastrophe. Yet, in California alone, nearly 10,000 retirees will get pension checks totaling at least $100,000 this year.

The economic struggles of the past decade lit the fuse for the pension fund time bomb. In 2000, half of the 50 states had enough money socked away to cover future pension costs, according to Pew.  By 2008, only four states -- Florida, New York, Washington and Wisconsin -- could make that claim. The other 46 are potentially on the road to insolvency.

Joshua Rauh

Joshua Rauh, associate professor of finance at at Northwestern University, estimates that 20 states will run out of pension money by 2025.

The pension doomsday clocks in Illinois and New Jersey will strike even sooner, in 2018, he said.

What happens then?  In New Jersey, for example, the state is obligated to pay pensions out of the general fund when the pension fund runs dry. In 2018, the state will owe $14 billion in pension payouts, or one-third of the state's annual tax receipts. To put that in perspective, to plug a budget hole like that this year, the state would have to cut all education spending. That bears repeating: It would have to eliminate spending on every elementary school, high school and college from its budget.

That's why stories of $195,000 pensions, rampant double-dipping, workers collecting pensions on seven, eight or even nine government jobs, and other excesses seem so absurd. (Read Full Article "Super-sized Pensions

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