A new report from the Hoover Institution written by Senior Fellow Joshua Rauh and entitled "Hidden Debt, Hidden Deficits: How Pension Promises Are Consuming State And Local Budgets," does a masterful job illustrating the true severity of America's public pension crisis, a topic to which we've dedicated a substantial amount of time over the past couple of years. 

As part of the study, Rauh reviewed, in detail, 649 state, county and local pension systems in the United States and ranked them based on funding status and impact on local budgets.What he found was a hidden taxpayer debt burden, in the form of underfunded pensions liabilities, totaling over $3.8 trillion. Of course, as we've pointed out multiple times as well (see "An Unsolvable Math Problem: Public Pensions Are Underfunded By As Much As $8 Trillion"), Rauh argues that that $3.8 trillion taxpayer obligation is actually much larger if you apply some "common sense" math as opposed to "pension math."

As of fiscal year 2015, the latest year for which complete accounts are available for all cities and states, governments reported unfunded liabilities of $1.378 trillion under recently implemented governmental accounting standards.However, we calculate using market valuation techniques that the true unfunded liability owed to workers based on their current service and salaries is $3.846 trillion. These calculations reflect the fact that accrued pension promises are a form of government debt with strong rights. These unfunded liabilities represent an increase of $434 billion over 2014, as realized asset returns fell far short of their targets.

Governmental accounting standards for pensions underwent some changes in 2014 and 2015 with the implementation of Governmental Accounting Standards Board (GASB) statements 67 and 68, procedures which require state and local governments to report on the assets and liabilities of their systems with a greater degree of harmonization. However, these standards still preserved the basic flaw in governmental pension accounting: the fallacy that liabilities can be measured by choosing an expected return on plan assets. This procedure uses as inputs the forecasts of investment returns on fundamentally risky assets and ignores the risk necessary to target hoped-for returns.

Specifically, the liability-weighted average expected return chosen by systems in 2015 was 7.6 percent. A 7.6 percent expected return implies that state and city governments are expecting the value of the money they invest today to double approximately every 9.5 years. That means that a typical government would view a promise to make a worker a $100,000 payment in 2026 as “fully funded” even if it had set aside less than $50,000 in assets in 2016; a similar payment in 2036 would be viewed as “fully funded” with less than $25,000 in assets in 2016.

With that intro, here are the stats on the worst funded public pension plans by state, county and city.

At the state level, it should come as little surprise to our readers (see "Illinois Pension Funding Ratio Sinks To 37.6% As Unfunded Liabilities Surge To $130 Billion") that Illinois is at the very top of the list for the worst funded pension system in the country.

Meanwhile, the worst funded state pensions will continue to see their underfunded liabilities continue to grow as they would have to dedicate anywhere from 15%-25% of their entire revenue base just to maintain their current funding levels...which, of course, is not likely.

At the city level, again it should come as little surprise to our readers that Illinois was able to claim the top spot for worst State and City when it comes to pension liabilities.Here are a couple of recent posts on Chicago's pension disaster:

• How Chicago's Largest Pension May Run Out Of Cash In As Little As 4 Years
• Ponzi Scheme: What The Chicago Teachers' Pension Would Be Called If It Were A Hedge Fund
• Countdown To Insolvency Begins For Chicago Pensions As State Supreme Court Rejects Reform Bid

Meanwhile, Chicago would have to spend nearly 45% of its annual budget on pension contributions just to avoid losing additional ground.

Finally, Illinois nearly completed the coveted state, county and city trifecta but was narrowly 'bested' by Wayne County, Michigan.

But when it comes to pension underfundings relative to county revenue sources, California clearly 'wins' the day with 10 of the worst 11 counties based in California.

Of course, as we've said many times before, these public pension problems can be ignored for a very long time as managers pursue the "kick the can down the road" strategy.  That said, eventually each and every one of them will face an actual funding crisis that can only be solved with actual cash rather than funky pension math. When that day comes, people will look back and fondly reminisce about the "mild" recession of 2009.