is now my pleasure to recognize the second panel of witnesses doctor andrew biggs is a resident scholar at the american enterprise institute for policy research mister mark mix is the president of the national right to work committee doctor robert novy marx is a professor of finance at the university of rochester simon graduate school of business university pursuant to the house rules all witnesses will be sworn in would you please rise to take the oath do you solemnly swear or affirm that the testimony you are about to give will be the truth the whole truth and nothing but let the record indicate all witnesses answered in the affirmative please be seated we will suspend opening remarks i simply want to thank you for your patience i know that we had an audience that included your presence and your testimony is every bit as important because ultimately the facts will determine a great deal of what the committee does budgetary challenges facing state governments i will touch on three topics related to state government finances public sector pensions public employee compensation and state investment practices financing for public employee pensions poses significant challenges but as bad as the current pension funding situation may appear the reality is likely far worse the gao reports that funding for public sector pensions currently equals around twelve percent of public sector wages but these figures are based on current accounting rules which allows plans to discount guaranteed benefit liabilities using expected interest rate on a portfolio of risky assets economists are nearly unanimous in believing this approach to be both technically wrong as it understands the true value of plan liabilities and from a policy perspective dangerous as it encourages state and local pensions to take excessive investment risk if public sector pensions were required to use economically sound accounting rules the cost of pension funding would rise from around twelve percent of employee wages to an astronomical forty six percent this latter figure represents the true value of the pension benefits being promised and the true burden being placed on the public the difference between the twelve percent and forty six percent figures represents the value of the risk that state pension funds are taking states reduce the apparent pension cost burden by investing in risky assets but this merely increases the contingent liabilities borne by taxpayers should investment returns falter whether states resolve rising employee health and pension costs by increased taxes or reduced benefits depends in part upon how they judge the overall compensation of public sector employees a number of recent studies have concluded that public employees in wisconsin and other states are significantly underpaid relative to what similar individuals would receive in the private sector these studies have been cited in arguing against changes to public sector compensation but existing analyses of state and local pay significantly undercount future pension benefits omit entirely retiree health coverage and ignore the value of higher public sector job security correcting for these errors generates very different conclusions in certain large states such as california average public employee compensation is around thirty percent above what similar private sector workers would receive in wisconsin we found a public sector pay premium of around ten percent while compensation varies from state to state the broad view that state and local employees are significantly underpaid is almost certainly false finally i wish to touch on the investment practices of state and local pensions public pension accounting literally says that a plan that takes more investment risk immediately becomes better funded to the tune of tens or even hundreds of billions of dollars for policy makers seeking to avoid difficult choices riskier investment portfolios are an attractive alternative since the mid  s the typical public sector pension portfolio has nearly doubled the share of equities that it holds today the shift is towards so called alternative investments which include private equity hedge funds and the like in forthcoming research i calculate that public sector pensions have actually increased the risk of their target portfolio allocations since the financial crisis of two thousand and seven there is the danger that rather than learning from experience pensions will seek to double down in an effort to avoid the inevitable a number of states have also issued billions of dollars of pension obligation bonds meaning in effect they are making risky investments with borrowed money but increased risk in pension investments make state and local finances as a whole more subject to the shifting winds of financial markets moreover it is not clear that lawmakers fully understand the investments they are making the solution to this problem is better pension accounting that removes the dangerous incentives towards ever increasing levels of investment risk better information is the key to better policy lawmakers around the country can turn state and municipal finances around just as lawmakers here in washington can turn around federal finances but time is a luxury that is growing short while still mired in a recession it is difficult to contemplate painful long term reforms but there is reason to believe that such reforms if properly enacted can generate new confidence among citizens businesses and financial markets that american government at all levels has the capacity to get on top of its budgetary problems and during an economic slowdown renewed confidence is essential to a recovery thank you very much chairman issa thank you mister mix mister mix mister chairman thank you for the opportunity to participate may we live in interesting times municipalities are in desperate states several questions arise as a takeoff point for this discussion but an obvious one is what municipalities and states must do to fix it but that question cant be answered until we understand the cause of the condition this is where i will comment i believe that the primary cause of the current condition is the inability to implement reform as a result of actions taken decades ago that empowered government union officials with privileges that are inappropriate to the functions of government specifically i am talking about granting private sector labor organizations the privilege of a monopoly bargaining over government workers lets be clear here this does not mean that government workers dont have the right to join a union and they cant associate it means about recognition that right shouldnt be taken away for the right to join an associate but it does mean that the model we ascribe to the private sector is completely inappropriate for government and that is now becoming clear and i am in good company with that premise as we have heard already the testimony of members of congress citing president representatives of the government employee council was endorsed which included the following it said in terms of accepted collective bargaining procedures government workers have no right beyond the authority to petition congress a right available to every citizen in new york city the petri dish government union power democrat mayor robert wagner was advised to break a campaign pledge made to government union officials because granting union monopoly bargaining would grant too much power to union officials and wet their appetites for even more his advisors told him it would give unions too much sway over elected officials and wagners advisors were right after the new york city model had been in place for several years former new york afscme union president victor gotbaum boasted we have the ability to elect our own boss a new york state court spelled out more precisely in the years earlier in a case called railway mail associates versus murphy in which they opined to tolerate or recognize any combination of civil service employees of the government as a labor organization or union is not only incompatible with the spirit of democracy but inconsistent with every principle upon which our government is founded to admit as true that government employees have the power to halt the functions of government unless their demands are satisfied is to transfer to them all legislative executive and judicial power nothing could be more ridiculous fast forward  today we see dramatic impact of the process which is inconsistent with every principle upon which our government is founded in may two thousand and ten the business insider website published a list of the nine states most likely to default the news and analysis oriented site ranked heavily unionized california illinois massachusetts michigan nevada new jersey new york ohio and wisconsin as the worst default risks an average of sixty one percent of public sector employees in those nine states with the worst default risk are under union monopoly bargaining power in two thousand and nine that is overall public unionization of twenty percent higher than the typical state in the nine states with the worst default risk from one thousand nine hundred and ninety nine to two thousand and nine aggregate private sector jobs fell four point two percent but state and local government jobs increased by nine percent not one of the twenty two states with the two thousand and nine public sector unionization rate of under thirty percent was found to be on the business insiders most likely to default list further washington examiner editor dave freddoso recently analyzed the relationship between public sector unionization and state per capita debt freddoso found that among the states with fewer than forty percent of state and local government workers unionized the median per capita state debt in two thousand and seven was two thousand two hundred and thirty eight dollars among the states between forty and sixty the median debt was three thousand six hundred and nine dollars but among the states with more than sixty percent of the state and local government workers unionized with monopoly bargaining laws the median per capita debt was six thousand three hundred and eighty dollars and these are two thousand and seven numbers before we even got to the economic crisis excessive spending taxation and debt are endemic to governments everywhere but there are large measurable differences between the states that have handed monopoly privileges to public safety union officials and states that have resisted the pressure in any discussion of state municipal debt and the tough choices ahead they must include the issues of growing government union monopoly power and the impact on the states municipalities and most important taxpayers chairman issa thank you professor novy marx mister novy marx contrary several of the statements made here this morning state and local systems are significantly underfunded the shortfalls faced by these systems represent massive debts that public employees and retirees expect state and local taxpayers to repay the amounts that are owed are large enough to threaten the continuing viability of many state and local government systems and impose considerable risk for federal taxpayers the exact magnitude of the problem has been concealed by the flawed accounting methodology prescribed by the government accounting standards board or gasb i can illustrate these flaws with a simple example if i take a dollar out of my right pocket and put it into my left pocket i presume that you will all agree that doing so has made me neither richer nor poorer the idea that moving money from one pocket to another could somehow makes you richer insults common sense yet this is the idea upon which the states current claims that pension funds are only a trillion underfunded is based under gasb rules a plans reported financial status improves when it takes on more investment risk when a plan moves a dollar from its right pocket bonds into its left pocket stocks it magically gets richer less underfunded this logic is clearly flawed a dollar of stocks is not worth more than a dollar of bonds when you as an individual move money from your money market fund into the stock market you are not suddenly richer you do not get to pretend that you owe less on your home mortgage the payments that you are obligated to make on your house are completely unchanged how you invest your assets has no impact on the current value of your liabilities this is just as true for the states as it is for individuals despite gasbs claims to the contrary properly accounted for the unfunded portion of pension promises already made to state and local workers is roughly three dollars trillion or three times as large as that recognized under gasb this exceeds all recognized state and local debt combined and represents a debt owed to state and local government workers of roughly twenty five thousand dollars for each u s household these large unfunded liabilities are a serious concern but perhaps even more troubling is how the current methodology accounts for new benefit accruals that is how governments value the retirement benefits as a part of workers total annual compensation under current accounting the annual recognized cost of newly earned pension benefits averages roughly twelve to fifteen percent of total wages with plan members contributing on average slightly less than half that  the true cost of these service accruals is roughly twice as large twenty five to thirty percent of total wages meaning that each year most state and local workers earn employee financed pension benefits worth more than twenty percent of their salaries this is not to say that public employees are overcompensated i personally value services provided by government workers and am certain that many public sector workers are underpaid this does not however provide an excuse for misvaluing the benefits they receive undervaluing the deferred compensation these pension benefits represent has serious negative consequences for the way government is operated it encourages excessive growth in the public sector it also encourages states to finance current operations with off balance sheet debt leaving even larger bills for future taxpayers negotiations between states and their workers undervalued retirement benefits give both sides at the bargaining table incentives to trade current wages for future pension benefits workers will happily give up a dollar today for two dollars worth of benefits but the government accounting methodology values it less than a dollar current administrations may happily agree to this arrangement if it frees up money in current budgets as a result state city and county pension plans have become a pervasive tool for circumventing balanced budget requirements because  current contributions fall short of the cost of new benefit accruals the state and local pension problem is getting worse not better and this represents a concern for the federal government if the federal government cannot credibly commit to allowing states to fail then the states have little incentive to fix their problems in the event of a federal bailout taxpayers in fiscally more responsible states will subsidize those in more profligate states so any state that undertakes the unpalatable combination of tax increases and service cuts required to address this pension problem now risks losing its share of any federal funds used in the future to rescue the system the federal government consequently has an urgent need to establish incentives for states to deal with their pension problems the public employee pension transparency act h r five hundred and sixty seven is a useful first step congress should consider even stronger measures however to ensure that federal taxpayers are not the ultimate underwriter of state debts these should include incentives for states to close current plans to new workers and instead enroll new hires in transparent defined contribution plans and percent and one hundred and twenty percent respectively by two thousand and twelve even under optimistic assumptions a notable feature of the european debt crisis is that until very recently markets failed to discipline profligate governments in the european periphery and those governments were able to borrow at interest rates only marginally higher than those required of the german government markets also provided the financing that made possible massive housing market bubbles in ireland and spain and they failed to exercise the desired disciplinary function in the mistaken belief that this time was different and that  membership would automatically make countries in the european periphery converge to the strong economic performance of german economy the important lesson for the united states is that when markets did finally turn on the european periphery they did so in an abrupt and dramatic fashion greek and irish governments were effectively shut out of the capital markets they were forced to seek bailout packages from the imf and the eu and more recently last week the caretaker portugese government was also forced to eu bailout as external funding for the portugese government totally dried up despite these massive bailout packages markets are still demanding very high interest rates now of these countries and these high interest rates imply that the market is attaching a very high probability to the likelihood that these countries will actually default on their sovereign debt within the next three to five years as a condition for the bailout lending the imf and eu are requiring of greece and ireland massive budget adjustment of the order of ten percent of gdp over the next three years countries in the european periphery are now finding that experiences with the public finances would seem to offer the united states the following four cautionary lessons first u s policymakers should not take comfort from the fact that despite its very poor public finances the u s government itself at very low interest rates up until early two thousand and ten the greek irish portuguese governments all were able to fund themselves at relatively low interest rates only to find themselves subsequently virtually shut out of the capital marke is that when markets finally do lose confidence in the sustainability of a governments public finances they tend to do so in an abrupt and disruptive manner this tends to be highly disruptive to financial markets and it tends to be associated with prolonged and deep economic recessions one also finds that once a government loses the markets confidence it proves difficult to regain the markets trust thirdly dependence on foreign sources of financing exposes a government to the vicissitudes of foreign credit markets it also places a government in a position where foreigners can dictate the terms of future lending that can be harmful to a countrys economic prospects finally disruption in a governments bond market can have important implications for the financial system which tends to be a primary holder of government bonds experience shows that a weakened financial system is generally associated with lower long term growth thank you cha yield myself five minutes at this time professor novy marx in some of your published studies you seem to take issue with vermonts governors theory that he is first fully funded and then adequately funded  if we make reasonable assumptions that today for some reason they chose to go to a defined contribution how much underfunding would there be in the legacy of vermonts  other words if they achieve the eight point five percent starting the day that you shut it off they would be able to make all of their payments forever is that correct mister novy marx they would have a small shortfall but not a huge shortfall sort of return essentially they borrowed a lot of money to speculate in the stock market and if the stock market does better than the cost of their borrowing they will be in a better position if it does worse they will be in a much worse position but i view this idea that you can achieve eight point five percent by investing in the stock market as essentially borrowing public money to speculate in the stock market chairman issa and if we assume for a moment that there is some discount for inflation in the eight point five percent lets call it two  consensus estimates chairman issa if we were to use a baseline and this may delve into others if we were to use a baseline lets say of from any given time until one thousand nine hundred and eighty in other words not the last thirty years is there any ability to achieve  and i am a californian so i live this every day during good times good economic times times in which the market is performing and so is america the need for the social safety network generally goes down so the government spending state government spending medicaid and so on typically goes down if that is the case then when you have lower spending you have higher earnings within those ten or twenty years turn it around when the market goes to heck in a hand basket typically you have people laid off and greater public need is that sort of universally agreed to by all the panel no audible response chairman issa so no matter what we are dealing with we are assuming that the present system is one in which you must pay in more over a three five year period all of these plans have a certain waiting period typically they are trailing three years or something some of them go five but in any really long bad time of ten years for example you are going to have to pay in more at a time in which you are paying out more is that generally true mister novy marx that is true chairman issa so for any of you on the panel even forgetting about ideological reasons that we may want to choose other systems the governor of vermont said this was more efficient lets assume efficiency is as he defines is it better for the reliability to the taxpayer the people who will count on services in bad times and who in fact dont want to be misled in good times is there any basis to say that that system of needing more money paid into pensions at a time when there is less to pay and more needed and then needing less so you look good exactly at a time when it is only because people need less from the government mister biggs i think you have put your tax revenues higher expenditures or unemployment benefits things like that so you are asking taxpayers or contributors to the plan to pay extra into the plan to make up for losses at exactly the time they are least able to  do that so that is the problem when you get this correlation between the poor market outcomes and poor outcomes in other parts of the economy it makes it more painful to do those things a market valuation approach to looking at pension financing implicitly takes that eighty nine the nikkei was at thirty nine thousand today twenty three years later it is at ten thousand so we are living in a different time to expect to get an eight percent return after an economic crisis like this would seem to me to be but let me ask about the legislation recently introduced in indiana this legislation would make it a misdemeanor for an employer to require an individual to become or remain a member of a labor organization pay dues fees charity to another third party that represents dues fees or other charges required of members of a labor organization governor mitch daniels originally favored this legislation and prior bills that opposed unions in two thousand and five he signed an executive order limiting collective bargaining for state workers as a result according to an april th national review article the number of state union workers shrunk from over sixteen thousand  your organizations support governor daniels has now withdrawn support from this legislation have you heard that mister mix he has indicated that he opposes consideration of a right to work bill which was the reason the thirty nine democrats left the state republican governors including governor daniels who have distanced themselves from governor walker and in particular his assault on collective bargaining rights for workers but your organization continues to agree with governor walkers actions cummings i think this hearing has demonstrated that governor walker wildly overreached by insisting on stripping the rights of american workers even when such measures would have had absolutely no impact on the state budget mister biggs i wanted to follow up on a point that i think is extremely important as governor shumlin made very clear in his testimony earlier the budget shortfalls klein what he wrote in the washington post he says there was no sharp rise in collective bargaining in two thousand and six and two thousand and seven no major reforms of the countrys labor laws no dramatic change in how unions organize and yet state budgets collapsed so i say this to all of the witnesses if you want to talk about balancing the state budgets then lets talk about the budget lets talk about the real reasons for shortfall and lets talk about the real solutions i see my t to my colleague mister cummingss question mister mix in your written remarks you note that there is a close correlation between high state debt and the existence of public sector monopoly bargaining can you explain that for me and just expound on that a little bit mister mix yes maam i think the correlation between the cost of government and the proposition that union density is something that is becoming clear and if you look at the numbers that i cited from the study regarding per capita median state debt per person i think you see that coming clearly i think it is important also to understand that the idea of bargaining and the ability for a private third party to engage themselves in the relationships between taxpayers and their elected officials is something we need to address and i think if you look at the states the nine states that are running the risk of default all those states had a union density over sixty percent in the government sector  would like to just follow up again with my colleague mister cummings comment with regards to governor walker do you feel that he overreached mister mix mister mix i dont i think the idea that allowing workers the choice to join or financially support a labor union is a basic right part of the legislation that governor walker talked about and was in question here today was a provision granting wisconsin public employees the right to work free of union compulsion any member that believes the union represents them well and wants them to speak for them can voluntarily join that organization and have their voices heard just like any other citizen can but we should not presume that every worker out there supports what organized labor is doing for them and that there is a benefit on those people what we ought to do is give them the choice and what union officials ought to do is represent only those workers that want their representation because we know that any organization that is brought together through voluntary means is inherently stronger than any organization about ten percent the gdp it is on a path to reach within a year or two the levels of funding crisis that we have seen in other countries what common sense practical unsustainable and that will lead to a debt crisis going down the road the sensible thing for the united states to do would be to have a medium term budget program that seriously and credibly address those problems that brought down the deficit progressively over time you are seeing that for instance in the united kingdom right now where they have a medium term budget plan that is going to be reducing the  something like one point eight percentage points of gdp a year bringing it down from something like ten to three within a period of time but they are doing it in a credible way with actual measures passed through the parliament it would seem that that is what is needed if you are going to be assuring markets that you are seriously dealing with the problem rather than just running up huge deficits and then have the markets fear that the federal reserve is going to monetize it and we are going to be off to the races on clear congressional commitment that measures are going to be actually implemented it is no good just talking about we intend to do things you have to back it up by action that would give those markets a lot more confidence right now and i think that the only point that i was really trying to get across is not to be fooled by the fact that the united states government with its huge deficit is able to borrow in the tr  there is a choice government has to make with the revenues it gets from its people so when we have pension funds a discussion about pension funds if it is a private sector pension fund if it is underfunded those that should receive the pension are the ones that are getting harmed if it is underfunded in the private sector there is another group sort of the forgotten man if you will that are the taxpayers that are either going to pay higher taxes because these pensions were underfunded whether it is through union contracts or whatever it may be then you have not only the taxpayers but those people that desire a benefit out of their government for  instance you live in a city and they lay off half the fire department or some of the police or they dont have frequent trash service there are services you would diminish in order to meet certain events can you talk about this in terms government is infinity lived it is very big it will go on forever so we can ignore this risk but when you look at how the risk is actually allocated government is a pass through entity it doesnt bear the risk it distributes it to different stakeholders so when we look around the country today we see individuals who are having to pay higher taxes to support pensions we see layoffs in government workforces we see cuts in other programs so they can make room for their pension contributions so it is not the government that is bearing the risk of those market downturns it is effectively individuals who are bearing it so that is why we should value these pension liabilities the way that individuals do it i think one sort of troubling aspect of the way  defined benefit pensions in the private sector have worked in practice is often the market risk is one sided in very good economic times part of the money goes to help fund the pension but there is also the temptation to raise benefits we saw this in california we have seen it in new people in all aspects of our lives so we want to catch that issue there in terms of how we value these liabilities mister mchenry can you also discuss in terms of asset sales whether at the state or municipal level that you have an asset local governments have sold in order to meet immediate expenses these assets sales is a form of indirect bankruptcy if you will mister biggs in a sense i guess selling off an asset is like borrowing because the asset in public accountant and i remember growing up thinking all these accounting things are so boring and why would you want to do that what i have discovered working in public policy is what you do about a problem really depends on how you measure the problem the way we currently  measure public pension financing we learn two things from that the current measures tell us the problem is small and can be solved by taking more investment risk using proper accounting measures we realize the opposite the problem is large and taking more investment risk am not an expert on unions and dont have a lot to say about them per se but i think there is a real danger in bargaining over things which are improperly valued so i think that the valuation of the pension liabilities very much interacts with the public sector as opposed to the private sector i am interested in this difference and i also have a very specific question so if you will answer the specific question and get to the larger point because  the accounting for publicly held companies what about designating gasb in terms of being able to capture the sec basically captures stale data at the broker dealer level what about capturing that data more upstream from the issuer would that be better would that give more transparency and more disclosure and can you touch on that so if you will answer that then get to the secure but it is not guaranteed if the sponsor goes bankrupt the retirees can lose some of their benefits so those liabilities are discounted at a rate of return derived from corporate bonds that means it is very safe but it is not totally safe with public sector pensions the benefits are effectively guaranteed often by state constitutions that means they should be discounted at a lower interest rate instead they are discounted at a higher discount you favorable to this perspective what are your thoughts on it mister biggs i think the disclosure bill sponsored by congressman nunes would be very helpful in that it would require every state to disclose the market value of their pension liabilities which means a you would get the numbers that would be much more accurate but b they would also be uniform between states i testified several weeks ago alongside several individuals from the ratings agencies and i got the impression they simply took the data from the public sector pensions as they published it but i think it is important if you have a better measure of the liabilities and also a measure that is truly apples to apples from state to state so i think that would be a very very he marx i think it would be a very helpful step as well i think that there is actually a lot more information they can disclose they actually forecast expected cash flows every year into the future in calculating the liability and there is no reason that they dont disclose that it should be public information they are public entities mister mchenry thank you thank you misess maloney for five minutes misess maloney thank you and i thank all of you for your testimony i regret i had a conflict with another meeting but debate that we had in the panel before you many people blame the poor financial condition of states on public pension systems as if pension underfunding is the primary cause of a states financial problems in fact the republican staff on this committee issued two briefing memos that made this exact argument the largest threat to state and municipal fiscal security is financial problem in those particular editorials so my question doctor biggs is given what we heard from the governors and from the editorial boards do you agree with this  n that the largest threat to state municipal fiscal financial security is government sponsored pension plans mister biggs well as i stated in my testimony the drivers and the cause of the deficit that state and local governments are suffering from now were distinct from public pension plans were distinct from public employee compensation the question you are asking though is slightly different what is the largest threat to state and local finances and that raises some different questions because the pensions have shifted so heavily towards risky investments that even a small change in the rate of return they would receive would have significant problem is if you are investing in the sorts of assets they are which are heavy on equities foreign investments hedge funds if you cant afford to lose twenty five basis points on your rate of return you are in very big trouble misess maloney well actually there is another hearing going on in financial services i need to get to on a regulatory reform bill we tried to really bring some controls and safety to some of these investments but i would like to ask about an analysis by the national association of state retirement administrators and according to this analysis less than three percent of all state and local government spending was used to fund public p under the more lax accounting rules from gasb and b if they use more honest accounting they would have to pay significantly more than that one example i looked at was illinois which was not even meeting its sort of actuarially required payments if they had to pay the market value of their payments it would be something like fourteen percent of their state budget that gets very very difficult misess maloney well i would like to cite another study from the center for economic and policy research and according to this study the primary cause of pension shortfalls in our country was the economic collapse that we suffered in two thousand and eight rather than inadequate contributions to government retirement programs i think the argument made in that paper was that the shortfalls we are looking at now were a result of the downturn in the assets that they held one reason they were holding so much risky assets was because it allows them to discount their liabilities at a high interest rate so in effect the poor state of funding we are seeing now is a function of the investment choices they made and those investment choices they made were driven by the accounting misess maloney we are trying to bring more accountability in those investment choices but i would like to ask doctor big gs isnt it true that while pension plan underfunding is a problem for some states there are more than a dozen states rated by the pew center as solid performers let me put it to you this way the department of labor has standards for the health of private sector pension plans i believe a private sector pension plan that is under eighty percent funded is considered endangered and a plan that is under sixty percent funded is considered critical if public sector plans were required to use private sector accounting methods i dont believe there would be a public sector plan in the country that would be more than sixty percent funded they would all be considered critical the account is very very important here lifetime and probably yours to me it seems inaccurate and very unfair to tie the current financial problems that some states face with public retirement systems the cause of the problem mister biggs i dont believe i have said that public pensions are the cause of the problems i am not really aware of anybody else who has said that what i would say is that the public pensions because they were investing so aggressively are particularly vulnerable to the financial downturn that we had and second even if the recession was caused by other factors we cant go back to wall street or we cant go back to the housing market and say fix our problems we have the problems that we have and we have to make some decisions on how to fix our budgets going forward and how to fix these programs so that they are more robust in future years misess maloney if i am hearing you correctly you said many of the problems came from investing so aggressively so if the managers of the pension funds are the ones that are putting them in jeopardy maybe we need stricter standards there and capital requirements and so biggs it is not the managers what happens in most states is the legislature will set the discount rate that they want to use for the pension they will say we want to use a eight percent discount rate and they tend to choose a high discount rate because that makes the liabilities look small that makes the annual payments small then the fund itself has to go out and say and say well how are we going to get eight percent you cant get eight percent without taking a lot of risk so now they are shifting more and more into alternative investments an example i ha school districts were investing their pension funds in synthetic collateralized debt obligations it is the chasing of returns that is driven by the fact that a high return is imposed on them by legislatures who want to minimize the payments they want to make today part of the euro but that doesnt mean that the euro disappears as a currency what you could get is you could get the euro which is going to have as its members the original strong countries of the north the germanies the legislative days to submit questions or comments for the record thank you for your testimony and thank you for your hard work