Reality Check: Ad Takes Aim At Walker On Pension Funds
Updated On: Sep 23 2010 10:17:14 AM CDT
In this We the People Fact Finder report, WISC-TV looks at a question one viewer had after seeing a recent ad about Republican candidate for governor Scott Walker and pension funds.
Pat Gilbert of Madison asked: "Did Scott Walker borrow $400 million to correct a problem with pension funds?"
The city of Milwaukee and Milwaukee County had two very different pension dilemmas, but an ad from Democrat Tom Barrett, who is Milwaukee's mayor, leads viewers to think the dilemmas are the same, WISC-TV reported.
"Under Tom Barrett, the city of Milwaukee met the crisis head on, and Barrett used smart budget cuts to help solve the problem," says the ad.
A WISC-TV analysis found this needs clarification.
The city of Milwaukee's pension issues last year amounted to a $49 million shortfall in the pension fund following the 2008 drops in the stock market. Milwaukee County's gap was 20 times that.
Barrett did make cuts rather than borrow money to balance the city budget, but he also raised the tax levy about 4 percent to cover the shortfall, WISC-TV reported.
"In Milwaukee County, Scott Walker borrowed $400 million, and passed the pension debt onto the next generation," says the ad.
A WISC-TV analysis found this also needs clarification.
It's true that Walker, who is the Milwaukee County executive, was supportive of a move by Milwaukee County to issue $400 million in pension obligation bonds to help cover a nearly $1 billion long-term shortfall in the pension fund.
What does that mean? Essentially the county borrows money at a low interest rate, invests it at a higher interest rate and hopes to profit. That of course is all dependent on the market.
In this case, $400 million was borrowed at about a 6 percent interest rate, then put into the pension fund, where the assumed rate of return is 8 percent. That 2 percent difference goes to increase the pension fund as well.
Walker called it a cost-savings move, saying in the long run it could make the county $237 million over 35 years. But it's risky considering market fluctuations, WISC-TV reported.
Last year, the pension fund made 22 percent, according to the county budget director, and this year it's likely to be only 1 or 2 percent.
To further compare, the city of Milwaukee's pension fund is now more than 100 percent funded. Milwaukee County's, while making strides, is only about 93 percent funded.
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