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Policy Brief

Paying Down Unfunded Pension Liabilities Through Asset Sales and Leases

State and local governments across the nation are facing massive unfunded public pension liabilities, with estimates ranging anywhere from $1.1 trillion to $4.7 trillion. Fortunately, there is now a robust discussion about pension reform. That discussion has focused mainly on reforms to government employee retirement plans, such as changes to future pension benefits that have not yet been earned and shifts to defined-contribution or cash balance plans. Such policies are designed to make pension systems more financially sustainable and avoid additional unfunded liabilities, and they form a critical foundation of any serious pension reform effort.

However, to date there has been relatively little discussion about how to reduce existing unfunded liabilities. One problem is that any reform that would result in significant reductions in already-promised benefits to current workers and retirees understandably has little public support and may face major legal and political obstacles. That means municipalities and states with underfunded pension systems will, at some point, have to make additional contributions in order to meet their obligations.

From an accounting and legal standpoint, unfunded pension liabilities have not historically been treated in the same manner as general obligation bonds and other types of public debt. Yet, pension liabilities are implicitly an off-balance-sheet debt obligation of the government. As such, there is an urgent need not only to account for them properly but also to fund them in ways that impose the least additional burden on taxpayers.

One promising strategy that policymakers are starting to consider is the sale or lease of government assets-such as land, buildings, infrastructure or enterprises-and the use of proceeds to pay down existing pension debts and thereby put public pension systems on a healthier financial footing. This brief considers such an approach as a complement to comprehensive pension reform efforts that seek to reduce future unfunded liabilities by shifting away from traditional defined-benefit pension systems.


Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.

The project aims to promote solvent, sustainable retirement systems that provide retirement security for government workers while reducing taxpayer and pension system exposure to financial risk and reducing long-term costs for employers/taxpayers and employees. The project team provides education, reform policy options, and actuarial analysis for policymakers and stakeholders to help them design reform proposals that are practical and viable.

In 2016 and 2017, Reason's Pension Integrity Project helped design, negotiate and draft pension reforms for the state of Arizona's Public Safety Personnel Retirement System and Corrections Officer Retirement Plan, which both passed with overwhelming bipartisan support in the state legislature and were signed into law by Gov. Doug Ducey.

Gilroy is also the Director of Government Reform at Reason Foundation, researching privatization, public-private partnerships, infrastructure and urban policy issues.

Gilroy has a diversified background in policy research and implementation, with particular emphases on competition, government efficiency, transparency, accountability, and government performance. Gilroy has worked closely with legislators and elected officials in Texas, Arizona, Louisiana, New Jersey, Utah, Virginia, California and several other states and local governments in efforts to design and implement market-based policy approaches, improve government performance, enhance accountability in government programs, and reduce government spending.

In 2010 and 2011, Gilroy served as a gubernatorial appointee to the Arizona Commission on Privatization and Efficiency, and in 2010 he served as an advisor to the New Jersey Privatization Task Force, created by Gov. Chris Christie.

Gilroy is the editor of the widely-read Annual Privatization Report, which examines trends and chronicles the experiences of local, state, and federal governments in bringing competition to public services. Gilroy also edits Reason's Innovators in Action interview series, which profiles public sector innovators in their own words, including former U.S. Transportation Secretary Mary Peters, former Florida Gov. Jeb Bush, former Indiana Gov. Mitch Daniels, former New York City Mayor Rudy Guiliani and more.

Gilroy's articles have been featured in such leading publications as The Wall Street Journal, Los Angeles Times, New York Post, The Weekly Standard, Washington Times, Houston Chronicle, Atlanta Journal-Constitution, Arizona Republic, San Francisco Examiner, San Diego Union-Tribune, Philadelphia Inquirer, Sacramento Bee and The Salt Lake Tribune. He has also appeared on CNN, Fox News Channel, Fox Business, CNBC, National Public Radio and other media outlets.

Prior to joining Reason, Gilroy was a senior planner at a Louisiana-based urban planning consulting firm. He also worked as a research assistant at the Virginia Center for Coal and Energy Research at Virginia Tech. Gilroy earned a B.A. and M.A. in Urban and Regional Planning from Virginia Tech.