Faulty Analysis

Introduction

As state and local governments lead efforts to address the unprecedented fiscal challenges created by stagnant economies, in the face of aging populations and workforces, the accuracy and integrity of information is more vital than ever. Authors of a new paper, The Crisis in Local Government Pensions in the United States, would be more constructive, as well as provide more accurate municipal pension information if their assumptions were based on historical experience and their methodology appropriate for the government sector. Robert Novy-Marx and Joshua Rauh – who also earlier this year authored, Are State Public Pensions Sustainable? – again vastly underestimate projected future contributions to public pension plans and expected investment returns to draw dramatic and improbable conclusions regarding the solvency of these plans.
 

Date published

October 2010

Contact

Keith Brainard, Research Director
Jeannine Markoe Raymond, Director of Federal Relations

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Introduction

Robert Novy-Marx and Joshua Rauh – whose analysis last year contained flawed methods reflecting an inaccurate understanding of public sector finance and operations – released a new paper that makes more dramatic projections about the condition of public retirement systems and their effects on state taxes. The paper, The Revenue Demands of Public Employee Pension Promises, uses underlying assumptions that understate revenues, inflate costs, and ignore other available public policy options. As a result, the paper’s conclusions bear little resemblance to the actual practices of most state and local governments or their pension plans, and again have limited application for policymakers wishing to address the financial impacts of the Great Recession.
 

Date published

July 2011

Contact

Keith Brainard, Director of Research
Jeannine Markoe Raymond, Director of Federal Relations
Leigh Snell, Director of Federal Relations, National Council on Teacher Retirement

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