Grand Rapids, MI -- (SBWIRE) --06/06/2011 -- Financial advisor Dennis Tubbergen spends a lot of time writing. Along with the writing tasks involved with his monthly newsletter Moving Markets™, Tubbergen has been devoting some time lately to writing his third book. According to Tubbergen, the book deals with the possible consequences of bad economic policy, and he recently shared some excerpts from the book on his online financial blog, discussing state and municipal pension funds.

“Economists at Northwestern University and the University of Rochester recently completed a study on state and municipal pension plans,” explains Tubbergen. “What they concluded should be frightening for many pension recipients or workers expecting pensions.”

Tubbergen goes on to say the study, titled “The Crisis in Local Government Pensions in the United States,” warns that the ever-increasing liabilities relating to these pension plans threaten the “ability of state and local governments to operate.”

“The report revealed details concerning 77 of the largest city and county pension plans, covering 2 million employees and retirees, which is approximately two-thirds of all municipal workers in such plans,” cites Tubbergen. “According to the study, the estimated liability of all municipal retirement funds is $584 billion.”

The study claims Chicago residents face the highest individual burden for pension liabilities from seven municipal retirement plans. The liability is almost $42,000 per household. New York City residents had the second highest liability per household at $39,000.

“Keep in mind, this study examined only municipal pension,” adds Tubbergen. “The $584 billion unfunded liability number relates only to those pensions. A 2009 report by the same universities estimated the state level of unfunded pension liabilities to be at $3 trillion.”

Tubbergen notes if you add the combined state and local unfunded pension liabilities together for the Chicago household previously mentioned, the total liability per household increases to $71,000.

“Add that number to the federal deficit and the unfunded liability number calculated above and you’ll likely agree with me that it’s probably too late to correct years of reckless spending and generous, unsustainable promises,” states Tubbergen.

And what are Tubbergen’s opinions on who could be first to lose in this fiscal mess?

“The City of Philadelphia will be the first city to run out of funds in its pension plan,” estimates Tubbergen. “According to the calculations done in the study, that city’s pension outlay consumes 19 percent of the city’s budget in the year 2015.”

The study also concludes Chicago will see 53% of all revenues consumed by pension expenditures by 2020. But Chicago is not alone. In Boston, pension outlays alone will consume 29% of all revenues collected by 2019. Another 36 cities and counties are expected to be in similar trouble by 2030 according to the study.

“When these financial crises arrive, it’s predictable that a request will be made to Washington to bail out these pension recipients,” concludes Tubbergen. “The problem is, there is no money there to help either.”

The report concluded that some states will “cease to be able to function” because the accumulation of debt will prevent the states from being able to borrow money.
But Tubbergen argues that part of the problem with our economy also lies in the large amount of personal debt that has been accumulating. He notes that during the Great Depression, private debt rose to almost 250% of GDP. Today, private debt is at least 100% higher than that.

“This one fact, in my view, is enough to keep the economy sluggish for a long time,” warns Tubbergen. “It will simply take a long time to deleverage, or get the debt eliminated from the system. In my view, a sluggish economy is a best-case outcome: I believe that it may be far worse than just sluggish.”

To read more about Tubbergen’s opinions on the economy and to view more excerpts from his new book, go to his online blog at http://www.dennistubbergen.com.

Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in the USA Wealth Management Building in downtown Grand Rapids, Michigan. Tubbergen is CEO of USA Wealth Management, LLC and his weekly talk show The Everything Financial Radio Show is simulcast on two Michigan metro stations and also airs to over 600,000 financial advisors, with recent podcasts available at http://www.everythingfinancialradio.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.