(Refiles to change "special adviser" in second paragraph to
WASHINGTON Aug 4 The Treasury Department's new
office on state and local finance will scrutinize public
pensions, appointing a specialist in the area and becoming a
resource for retirement planning, its inaugural director said in
a speech on Monday.
State and Local Finance Office Director Kent Hiteshew told a
meeting of the Council of State Governments that he had
appointed the chief investment officer of Maryland's pension
fund as a policy adviser who "will substantially strengthen our
office's understanding of the critical challenges facing a
system upon which approximately 23 million Americans depend ...
for their retirement security."
Saying that state and local pensions now have enough money
to cover only 72 percent of their costs, in comparison to nearly
100 percent in 2000, Hiteshew added that very few pensions are
"While the current underfunding started prior to the Great
Recession, this was exacerbated by both market forces and trying
fiscal times during the last few years," he added.
Public pensions had $4.89 trillion in assets in the first
quarter of 2014, the highest on record, according to data from
the U.S. Federal Reserve. But they also had the largest
liabilities on record going back to 1945 - $5.03 trillion - and
their funding gap has widened since the 2007-2009 recession.
That recession devastated investment returns, which are the
chief revenue source for pensions, while simultaneously forcing
states to cut retirement contributions. While investments are
gaining and many states have increased contributions, public
pensions face a bulge of retirees from the "Baby Boom"
Hiteshew's office will study the state of public pensions
and help retirement systems evaluate their financial conditions,
and it will look into the growing costs of retiree healthcare.
Also on the office's agenda are President Barack Obama's
push for more infrastructure financing, including creating a
program akin to Build America Bonds, and continued monitoring of
the financial situation in Detroit and Puerto Rico.
Build America Bonds were created by the 2009 economic
stimulus plan, and the program expired in 2011.
The once popular bonds, which were taxable and paid issuers
a hefty rebate, lost their appeal when the rebates were cut
during congressional budget battles. Issuers have been slow to
warm to Obama's proposal of "America Fast Forward" bonds that
follow the same model, and which the administration says would
be protected from spending cuts.
Hiteshew, formerly J.P. Morgan's managing director for
public finance in its northeast region, also intends to help
improve liquidity, pricing transparency and financial disclosure
in the $3.7 trillion U.S. municipal bond market.
The Treasury Department announced the creation of the office
in April, nearly two years after John Cross left his position as
associate tax legislative counsel at Treasury, where he had
spearheaded major municipal bond initiatives.
The federal government's heightened interest in the market
is apparent across many agencies, including the Securities and
Exchange Commission. On Friday, Republican Commissioner Michael
Piwowar called for better municipal bond pricing information in
(Reporting By Lisa Lambert; Editing by Paul Simao)