Available Working Papers


Proper funding of state-sponsored pension liabilities has become politically controversial over the last seven years but has posed both practical and theoretical problems for far longer.  This paper investigates the determination of liability and asset levels of these pension funds by focusing on specific policies that have lead to the expansion and contraction of funding levels since 1995.  Building on theory I outline in a separate paper and an original dataset constructed from state personnel and pension benefit data, I demonstrate that the roles that legislative and executive partisanship play and do not play in these policy decisions is not straight forward and strongly dependent upon the specific policy being analyzed.  Importantly, public sector unions are not substantively responsible for contributing to state fiscal solvency woes, at least via pensions, and often act as bulwarks against poor pension performance when paired with friendly co-partisan state governments.  [Download]

Disclosure, Transparency, and stakeholders in public pension financial reporting

Public sector pension liabilities would account for over 200% of state expenditures if they were included on states' general fund balance sheets.  Worse, other scholars have suggested that liability levels are even higher than reported by the states (Novy-Marx and Rauh 2011) due to unrealistic modeling assumptions and overly optimistic forecasts.  This paper sets out to understand why some public pension plans underestimate their liabilities and overestimate their assets to a greater degree than others.  Utilizing an original dataset that expands Novy-Marx and Rauh's calculations to encompass 17 years of pension funding, I investigate the distinct influences that transparency and the presence of attentive stakeholders have on the likelihood of accurate financial disclosure.  I demonstrate that the degree to which the government "distorts" the reported health of a public pension is not just a function of the actual health of the pension, but also of the administrative structure of the pension board, the degree to which multiple types of state employees are covered by a single pension plan, and the strength of public sector unions. This suggests that the type of subtle corruption inherent in improper accounting and reporting behavior is not simply a result of political culture or incompetent policymakers, but a rational response to concrete political and budgetary trade-offs.  [Download]

State GO Credit Rating Response to Public pension Liability Data

Much has been made of, but little said, of what perceived state-level fiscal crises might mean for public policy and fiscal sustainability. Using historical S&P’s ratings and revised pension data that has been stripped of reporting bias, I run a simple empirical model to see whether self-reported or revised data are better at predicting one-year ahead general obligation bond ratings. Though both data fare reasonably well in predicting ratings, the self-reported data appear to outperform revised data in terms of explanatory power. Analyzing borrowing costs directly, however, suggests that creditors may be more savvy, and that actual liability data is better at predicting the size of the interest burden relative to outstanding debt.  [Download]

interest groups and fiscal sustainability in the us states: Evidence from revised pension data

This paper sets out to: 1) to construct a measure of state public pension liabilities and assets that is standardized and comparable across plans, states, and years; and 2) to try to understand, using this revised measure of pension fundedness, why some states have been able to keep liabilities and assets at an even keel while others are circling the fiscal drain. Analysis suggests that while state public worker union strength is associated with modest liability growth, as surmised by the media and suggested by Anzia & Moe (2012), unions have actually been able to keep funding levels higher than in states without a highly unionized public labor force, especially when Democratic governors are also in office and public sector workers are guaranteed the right to collective bargaining. I tentatively suggest that hostile politics - including the right to strike - is more likely to result in an environment in which both the
state government and the employees fail to recognize their own stake in the long-term fiscal sustainability of the government.  [Download]

a distaste for deficits: Voter opinion and balanced budget laws in the U.S. States

Few developed democracies have balanced budget laws that require governments to match expenditures to revenues from fiscal year to fiscal year, the United States federal government included. Nearly all U.S. state governments, however, have some form of balanced budget requirements on the books. Twenty-nine states go so far as to completely ban general expenditure deficits across fiscal years. Why would a state government choose to relinquish policy flexibility in the face of possible income shocks? Given the persistence and robustness of deficit spending in the theoretical literature, how could a government manage the political will to eliminate borrowing from policymaking? By building on a model in Alesina, Campante, and Tabellini (2008) and providing empirical evidence from the U.S. states, I suggest that voters might rationally demand balanced budget laws to the extent that they proxy
for pro-cyclical fiscal policy and to the extent that state governments are perceived to be untrustworthy.  [Download]