Lies, damned lies, and statistics.

• Author: Esser, Jeffery L.
• Position: From the executive director

Mark Twain popularized an expression he attributed to Benjamin Disraeli: "There are three kinds of lies: Lies, damned lies, and statistics." And this pretty well sums up all the falsehoods that have been bandied about in the media regarding state and local government defaults, bankruptcies, and pension fund collapses.

As every reader of this magazine knows, the last couple of years have been rough for state and local governments as they have coped with the effects of the financial crisis and the most severe recession since the Great Depression. Yet, unlike the federal government, state and local governments are required to balance their budgets, and over the past couple of years, they have done so by making many painful decisions, including laying off more than 435,000 employees and asking hundreds of thousands of others to take furloughs. What they haven't done, and have no intention of doing, is defaulting on their municipal bond payments.

Yet, a few people who are apparently trying to make a name for themselves are claiming the sky is falling and that the next financial crisis is in the state and local sector. So let's look at the lies, damned lies, and statistics they are using to make these outrageous claims.

Two articles in this issue of Government Finance Review, "Setting the Record Straight About Public Pensions," by Leigh Snell and "Addressing Media Misperceptions about Public-Sector Pensions and Bankruptcy," by Ronald D. Picur and Lance J. Weiss, dispel some of the falsehoods being spread about public pension systems. The scaremongers would have you believe that because there are a few pension systems and states with underfunded plans, the entire system is about to collapse. Nothing could be further from the truth. The facts, as reported by the National Association of State Retirement Administrators (NASRA)--based on the audited financial statements of the 93 largest public pension systems, covering 85 percent of the state and local retirement community--demonstrate that on average these systems are 80 percent funded. Most actuaries and experts consider this an appropriate level.

Yet when these facts are presented to demonstrate that only a few pension systems are having problems, the critics then attack the actuaries and methods used to calculate the funded status of public pension plans. The systems covered by the NASRA research assume an 8 percent average rate of return over a 25-year period, and in fact, the actual rate of...