Conservative Think Tank: RI's Pension Crisis Twice as Bad as You Think

Conservative think tank Rhode Island Center for Freedom & Prosperity is touting a new report from the Mercatus Center at George Mason University suggesting the state's unfunded pension liability (for state and local government) is twice as bad as the state estimates: $18 billion rather than $9.3 billion.

The state and the various cities and towns invest their pension funds, of course. And the Mercatus report is based on the questionable assertion that they should assume a rate of return equivalent to the modest yield on Treasury bonds rather than, say, the 7.5 percent return assumed for the state pension plan.

The report points to the state's poor returns over the last decade - only 2.28 percent, it says, for the state system - to justify its argument. But those poor returns include the effects of the Great Recession, of course.

Charting the liability requires a longer view, most economists would agree - even if there is a reasonable argument to be made about whether 7.5 percent is a bit high or a bit low.

But there is another problem here, too. The Rhode Island Center claims Mercatus is an objective, outside evaluator. But the center, funded by billionaire libertarian brothers Charles and David Koch, has faced no small amount of controversy for its furtherance of the conservative line.

I don't know the motivations of the authors of this particular report, of course - and the paper comes with a little disclaimer that it represents the views of the authors and not the official positions of the Mercatus Center. But the institution's reputation bears keeping in mind.

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