It might seem like a marriage made in heaven. Infrastructure projects take a long time to build but then deliver cashflows over an extended period. Pension funds have liabilities that stretch over several decades. Why not get the latter to finance the former? But the couple have barely survived the first date, let alone made it to the altar. A new report from the OECD estimates that global pension funds have just 0.9% of their portfolios in pure infrastructure plays.
Detroit may be an extreme case of fiscal incontinence. But its bankruptcy highlights a long-term problem faced by many American cities and states; how to fund generous pension and health-care promises that are no longer affordable. Now Detroit, like other cities, faces a choice. It has made promises to creditors and retirees that it cannot meet in full. How should it share the pain?
Few fiscal problems are as grave, or as little understood, as underfunded state and municipal pensions. The funding gap for all state schemes is estimated at $4 trillion—25% of GDP. States granted these benefits on the basis of recklessly optimistic assumptions, such as that pension fund assets would continue to generate the same returns as during the 1980s and 1990s.
Federal programs to support veterans cover a wide array of services, including pensions, health care, education benefits, life insurance programs, compensation for injuries, and home loans. CBO analyzes the budgetary and broader impacts of those services and of proposals to change those services.