NCPA - National Center for Policy Analysis

Clinton Raids D.C. Pension Fund To Pay For Teachers

November 12, 1998

Analysts have pointed to an ironic twist in President Clinton's plan to hire 100,000 new teachers. To do it, he's going to raid the assets of Washington, D.C.'s teacher pension plan, "reform" the district's pension fund so that it no longer invests in stocks and bonds, and give it the same pay-as-you-go structure as Social Security -- meaning no assets will remain in the trust fund.

How did it happen? Critics note President Clinton needed $1.1 billion for his teacher-hiring plan. Rather than cutting spending to offset new spending -- as required in the 1997 balanced budget agreement -- he found it in the D.C. fund, which is available because the federal government took over Washington's city government in 1997.

The fund contained $4.2 billion in assets, but its unfunded liabilities topped $4.8 billion. The problems started in 1980, when Washington was given home rule.

  • President Carter deferred refunding the pension plan's $2.06 billion unfunded liability until his second term, which never came.
  • Congress never made good on Carter's IOU, leaving the plan permanently underfunded.
  • If the $2.06 billion had remained in the fund and been invested in the stock market, it would have grown to $5.5 billion, assuming a six percent rate of return -- more than covering the current unfunded liability.
  • Despite being hobbled, the district board ran the plan well enough that if it had been fully funded in 1980, the plan would now be overfunded by at least $1.35 billion.

Thus, critics charge, the president and Congress did in one fell swoop what city officials couldn't do in 17 years: turn the pension system into a financial wreck. And while borrowing from the fund may help the White House with its short-term spending plans, it could harm thousands of teachers and cost taxpayers as much as $25 billion because of the fund's lost potential earnings.

Source: Joel Mowbray (Pioneer Strategies), "How Clinton Will Pay For Those 100,000 Teachers," Investor's Business Daily, November 12,1998.


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