San Diego’s $2.5 billion unfunded pension liability accounts for about 40% of the city’s total $6.8 billion debt. In the 2024 fiscal year, the city paid about $500 million in pension contributions, nearly 60% of which goes toward paying down pension debt. With unfunded pension liabilities and the city facing $540 million in forecasted budget deficits in the coming years, it has imposed a wave of unpopular taxes and fees on solid waste, parking, hotel stays, and more. Today, it is more than justifiable for taxpayers to question whether local leaders have given sufficient consideration to spending reductions and service streamlining relative to raising taxes and fees.

San Diegans felt similarly in 2006 when they passed Proposition C, authorizing “managed competitions” in which private companies would compete against city workers to reduce costs and increase innovation in delivering city services.

Managed competition can be transformational, generating cost savings of 5% to 20%. This technique has been successfully implemented in numerous states and cities, including Phoenix, Charlotte, and Indianapolis.

Former Indianapolis Mayor Stephen Goldsmith told Governing that the robust managed competition program implemented during his terms in the 1990s created over $400 million of value for city taxpayers. In Florida, former Gov. Jeb Bush’s administration conducted more than 100 managed competition initiatives that saved taxpayers more than $550 million.

But managed competition requires leadership committed to driving ongoing improvements, results and value. Politics and special interests can make managed competition challenging to sustain over time, as happened in San Diego.

City leaders didn’t fully embrace the managed competition effort, dragging out its implementation for years. Then they tended to give public employees special treatment relative to private firms regarding their cost estimates to deliver services, projections of future service demand, and the ability to penalize underperformance. It wasn’t a level playing field for private firms, and the city wasn’t pushing for efficiencies from government agencies. Rather than build the capabilities to improve these things, San Diego stopped trying.

From a taxpayer perspective, it is time to give competition another chance.

The rising costs of residential solid waste are a prime example. The private sector already picks up 70% of San Diego’s solid waste from businesses and apartments, with the city’s solid waste operation collecting the remaining 30% from single-family neighborhoods and multiplexes. The city’s costs have gotten so high that it is imposing a new solid waste tax on homeowners. San Diego did not see fit to test the market with the private firms that perform the same job in surrounding cities at significantly lower costs.

Phoenix has been applying managed competition in residential solid waste collection since 1979, dividing the city into zones and competing trash service in each zone every six years. In 2011, Phoenix’s Public Works Department told Government Technology that competition had generated $38 million in cumulative savings to that point.

San Diego’s leaders owe it to taxpayers to test the market and ensure that city workers are performing their jobs at maximum efficiency and at the lowest possible cost. Frustrated San Diegans rightfully wonder why the city didn’t implement this approach instead of raising taxpayers’ costs with the trash fee while continuing to do business with the same city employees. Worse, city officials are executing this implicit city job protection program at a time when every worker hired is adding significant costs and financial risks to San Diego’s already underfunded pension system.

Two decades ago, San Diego’s financial mismanagement earned it the moniker “Enron-by-the-Sea” and prompted taxpayers to demand procurement and pension reforms to save money. But as things improved over time, the city abandoned competition. And after state courts blocked a pension overhaul approved in a landslide in 2012, elected leaders ignored residents’ wishes and made no effort to craft a similar reform.

Instead of asking taxpayers to pay more taxes and fees to cover the city’s spending and debt, San Diego should give managed competition a fair chance to see if government agencies can improve efficiency or if the private sector can deliver better services at lower costs.

A version of this column first appeared at The San Diego Union-Tribune.

The post San Diego’s government needs more competition, not more taxes appeared first on Reason Foundation.

The trial would seek approval of ibogaine as a treatment for opioid use disorder, depression, post-traumatic stress disorder, and other behavioral health conditions, especially those suffered by military veterans. If the FDA approves ibogaine to treat a medical condition, the legislation would allow licensed physicians to prescribe ibogaine administration for a patient under supervision.  

The post Proposed Model Policy: “Veterans Mental Health Innovations Act”  appeared first on Reason Foundation.

State-based research and clinical trials

• After years of advocacy by veterans’ organizations and researchers, a bipartisan coalition of state legislators in Texas voted to fund ibogaine research programs (Texas Senate Bill 2308). In 2025, Texas launched a multimillion-dollar endeavor that will allow any state that enacts the VMHI to join the effort on ibogaine clinical trials.
• The most effective way to ensure those in need benefit from ibogaine is to conduct clinical trials using ibogaine as an investigational new drug. Clinical trials are a costly and lengthy endeavor for any one entity, but through VMHI, multiple states will conduct their own local trials, advancing a single unified application to the Food and Drug Administration (FDA).
• Under the VMHI, each participating state selects and funds a research grantee of their choice to conduct ibogaine clinical trials locally with in-state participants.

Multistate collaboration and shared success

• A multistate consortium allows states with limited resources to take part in what could be nearly a billion-dollar endeavor. This public effort to conduct FDA-approved clinical trials will be in partnership with a private drug developer, which will assume financial risk and responsibility for advancing the treatment through the clinical trial process. 
• Under VHMI, states retain the long-term benefits of the research they fund. Instead of handing over value to pharmaceutical companies, the bill keeps the research and development process rooted locally and ensures states are compensated if an application is successful.

Federal government and the role of the FDA

• Ibogaine is deemed a Schedule I drug by the federal government. Engaging in FDA-approved research is the surest way to prove its medicinal and treatment value.
• Once ibogaine is approved by the FDA to treat a medical condition, the VMHI would allow licensed physicians to prescribe ibogaine administration for a patient under supervision.
• The VMHI leaves direct engagement with the FDA to the drug developer, eliminating the need for states to navigate the complex clinical trial application process.

The model legislation for the Veterans Mental Health Innovations Act is available below. The template is designed to be easily adapted by states, with the sections that need customization highlighted.

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PEPRA has saved billions, but it still needs decades to get California on track

The California Public Employees’ Retirement System, CalPERS, estimates that PEPRA has saved the state more than $5 billion since its inception. Another $25 billion in savings is estimated over the next 10 years, but only if members reject AB1383 and guard the shared PEPRA commitments.

How AB 1383 would undermine the PEPRA reforms:

• It expands the definition of pensionable compensation for all California pensions, granting large—and expensive—benefit bumps for the state’s top-earning government workers.
• It removes critical cost-sharing requirements that have shielded taxpayers from paying for all unexpected pension costs. The bill would allow employers to pay part of employees’ required contributions, which would undermine the shared limit set by PEPRA and disrupt the careful balance of responsibility established by the 2012 reform.
• It makes special exceptions for public safety workers, reducing their retirement age from 57 to 55, and granting them a new level of higher-cost benefits. It also changes rules to allow public safety employers to move all of their existing members into this new, higher-level benefit.

AB 1383 would cost taxpayers more than $9 billion

State taxpayers are already heavily burdened by the costs of public pension enhancements going back to 1999. According to CalPERS, AB 1383 would add an additional $9 billion over the next 20 years. The ultimate cost to taxpayers could extend well beyond that if market results resemble those of the last 20 years, or CalPERS continues its prudent lowering of its expected rate of return on investments.

Bottom line

Assembly Bill 1383 rolls back crucial elements of the landmark PEPRA reform, which would impose billions in extra costs on the state’s already stretched taxpayers. California needs to stay the course with PEPRA and fully fund its pensions before promising richer benefits.

Download the full backgrounder:

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Ibogaine is a psychoactive alkaloid derived from the root of the Tabernanthe iboga plant, which has been used ceremonially for centuries. It has rapidly attracted interest from U.S. policymakers, veterans’ advocates, and addiction specialists for its potentially transformative benefits in alleviating post-traumatic stress disorder (PTSD), depression, traumatic brain injury, opioid use disorder, and a range of other neurological conditions that are impacting lives and burdening public budgets.

Arizona’s Fiscal Year 2026 state budget, signed into law in late June, includes a $5 million grant appropriation to study “ibogaine for the treatment of neurological diseases” at a research facility with “the ability to facilitate pioneering research and innovation in diagnosis and treatment of neurological conditions.”

The appropriation for ibogaine clinical trials may have ended up in the enacted state budget, but it originated as House Bill 2871, introduced in February by state Rep. Justin Wilmeth (R-Phoenix). 

“Every single day, we lose veterans to PTSD and traumatic brain injuries, and the treatment options available now just aren’t good enough,” Wilmeth stated in a March press release. “We have an opportunity here in Arizona to push for a treatment that could truly help those suffering from PTSD and traumatic brain injury.”

Former Arizona U.S. Senator Kyrsten Sinema testified on behalf of the bill as part of a national push to educate state lawmakers about the promise of ibogaine-assisted therapy. 

“Arizona is showing the nation how to solve real problems by putting cutting-edge science first,” Sinema told Reason Foundation. “We have no legal, effective treatments today for traumatic brain injuries and other neurological disorders. Ibogaine has shown incredible results for special forces veterans, and Arizona’s investment in clinical research that starts a path for ibogaine’s FDA [U.S. Food and Drug Administration] approval will save thousands more veterans’ lives—and the lives of Americans living with these diseases.”

Arizona is now the second state seeking to accelerate FDA clinical trials for ibogaine, after Texas Gov. Greg Abbott signed into law a similar $50 million appropriation for ibogaine clinical trials just two weeks before Arizona’s budget approval. Reason Foundation provided testimony in support of a Texas study bill, Senate Bill 2308, finding that ibogaine has shown tremendous promise as an alternative treatment for opioid use disorder and other persistent mental disorders.

The Arizona House modified Wilmeth’s original bill this spring to explicitly reflect that the state’s $5 million appropriation would serve as a match to an equal private sector match to effectuate a $10 million clinical trial, similar to how Texas’ $50 million appropriation is expected to match an equal amount of private contributions. Although Arizona’s match language was ultimately omitted from the final enacted budget, both Arizona and Texas are expected to see public and private philanthropic dollars paired to create major public-private partnerships.

Both Texas and Arizona can now be considered the first two states signing on to what advocates hope will become a larger, coordinated effort to accelerate ibogaine clinical trials and potential U.S. Food and Drug Administration approval. Former Texas Gov. Rick Perry recently launched and serves as board chair of a new advocacy group, Americans for Ibogaine, that will support state and federal efforts to fund and accelerate clinical research—what some have described as a “Manhattan Project” for ibogaine in the United States.

For more information on ibogaine and the emerging interest from state policymakers, see Reason Foundation’s 2024 policy study, Ibogaine Treatment for Opioid Use Disorder.

The post Arizona joins Texas in ibogaine clinical trial research push for veteran, first responder mental health appeared first on Reason Foundation.

The barriers to building housing are best addressed at the state and local levels, so it was a good outcome for the provision focused on selling land to build housing to die in the federal bill. However, the intense emotions surrounding the divestment of even one of those 640 million acres illustrate how challenging it has become to confront the government’s poor asset management and spending.

It’s understandable to get passionate about protecting the Grand Canyon, Yosemite, Yellowstone and the other crown jewels of our national parklands. But the National Park System only accounts for approximately 13% of all federal land, though.

Most calls for land divestment focus on the Bureau of Land Management and the Forest Service, the agencies that hold nearly 70% of all federal lands. These two agencies collectively control almost 50% of the total land west of the Mississippi River, making them major players in the economies of Western states.

Outside of a federally landlocked city like Las Vegas, these vast Bureau of Land Management and Forest Service land holdings are often in remote areas far from job centers and existing infrastructure. While there are inherent development challenges (e.g., steep terrain, water supply) that make residential housing construction prohibitive, the land could be sold to eliminate taxpayers’ costs of managing it.

The Government Accountability Office has flagged federal property management as “high risk” since 2003. Maintenance backlogs for federal land have gone from $170 billion to $370 billion in just seven years. Federal facilities are crumbling, underutilized and poorly configured for modern needs. Therefore, it should not be heresy to suggest that targeted, data-driven divestment could save taxpayers money, prioritize lands with genuine development potential near existing communities, while preserving crown jewel parks, wilderness areas and wetlands that provide clear public and ecosystemic value.

The federal government owning nearly 50% of the area west of the Mississippi suggests a massive misallocation of resources and missed economic opportunities. While there are pockets of parks, and recreational and industrial revenue generation from public lands, many federal land holdings offer minimal public benefit while imposing substantial carrying costs.

Rural communities across the West have long chafed under federal land rules that limit local economic development and constrain local tax bases. A smart approach to federal land sales could strengthen rural economies, increase local property tax revenue, and bring environmental protection and land management under local oversight.

It’s not about selling Yosemite or the Grand Canyon; it’s about unloading underutilized properties that drain federal resources without delivering commensurate benefits.

The best path forward requires Congress to launch a comprehensive inventory of federal holdings, identifying properties ripe for divestment while safeguarding truly national assets. It could even create a bipartisan federal lands committee modeled after the Base Realignment and Closure Commission, which successfully navigated the closure of hundreds of the country’s military bases through a fair process with minimal politics and maximum pragmatism.

When it comes to California’s and America’s housing crisis, selling federal land isn’t the answer. Local land-use regulations, zoning laws, subdivision ordinances, delays in permitting, poor regional planning and governance, and other regulatory barriers are to blame for the lack of housing and high prices. These regulations, red tape and long delays prevent builders from meeting the demand for housing.

Rather than relying on Congress to provide a solution, leaders in California should follow the lead of major cities in Texas, such as Austin and Houston, by focusing on legalizing accessory dwelling units, streamlining permitting processes, and loosening or eliminating restrictive zoning regulations. These types of reforms can help increase housing supply quickly and at scale, and are far more impactful than what could be expected from distant federal land sales. California’s recent housing reforms demonstrate what’s possible when state governments are motivated to finally address long-standing problems.

States and localities must continue to build momentum in implementing the zoning and permitting reforms that actually increase housing supply and drive down costs.

Congress can’t solve the housing crisis by selling federal land, but that doesn’t mean we should cling to an outdated land ownership model that serves nobody well. It’s time to right-size the federal government’s real estate empire — not because it will make housing more affordable, but because responsible stewardship demands it.

The federal government should focus on safety, security and truly national priorities, not on being America’s largest and worst landlord. And state and local governments should remove the barriers they’ve created to building more housing. That’s the path to more affordable housing and a little less government.

A version of this column first appeared in The San Diego Union-Tribune.

The post We should sell some federal land, but housing crisis requires local solutions appeared first on Reason Foundation.

HF978 would create a framework for limited, legal access to therapeutic psilocybin services for approved patients, provided by state-licensed qualified medical providers.

• The Iowa Department of Health and Human Services (HHS) will develop rules, regulations, and licensure requirements for health providers. HHS will establish a licensing board for psilocybin production establishments, with requirements for licensing, operation, and inspections. The board will begin accepting license applications on July 1, 2026.
• Only qualified health professionals, licensed and granted a provider registration card by HHS, may recommend psilocybin services to select patients over 21 years of age. Before being recommended treatment, a patient must be evaluated in person by a registered qualified medical psilocybin provider, who must be a physician, surgeon, physician’s assistant, nurse practitioner, or advanced practice registered nurse who has undergone training specific to psilocybin therapy. Administration of psilocybin may take place only in an approved qualified therapy provider location; patients may never take psilocybin products home.
• HF978 does not legalize or decriminalize psilocybin and would retain current prohibitions on the possession, manufacturing, and sale of other psychedelic compounds.
• Similar programs have already been established or approved in Colorado, Oregon, New Mexico, and Utah.

Promise of psilocybin-assisted therapy

• Over the past decade, the medical and mental health communities have increasingly recognized the potential of psychedelic therapies for the treatment of intractable mental health conditions like post-traumatic stress disorder and others.
  • Psychedelics are demonstrating the potential to be more effective treatments than conventional psychoactive medications
  • Legal and logistical barriers to innovation persist even as the range of potential uses for psychedelic substances has expanded.
• In 2018 and 2019, the U.S. Food and Drug Administration granted a “breakthrough therapy” designation to psilocybin-based treatment for major depressive disorder and severe treatment-resistant depression, and 14 active FDA Phase II or Phase III clinical trials are underway today.
  • Psilocybin has low physiological toxicity, low risk of abuse or addiction, safe psychological reactions, and no linked persistent harmful physiological or psychological effects during or after use, according to years of anecdotal data as well as modern scientific investigations.
• A 2024 article in the academic journal Brain Sciences reviewed a dozen high-quality studies on the therapeutic effects of psilocybin administration, concluding: “A quantitative analysis of the studies indicates that psilocybin is highly effective in reducing depressive symptoms severity among patients with primary [Major Depressive Disorder] or [Treatment Resistant Depression]. Both single-dose and two-dose psilocybin treatments significantly reduced depressive symptoms severity, with two-dose administration sometimes yielding more pronounced and lasting effects.”

Takeaway

HF978 creates a regulated, limited program to access psilocybin, which has shown tremendous promise in the therapeutic treatment of a range of neurological and mental health conditions, with minimal risk to both public safety and public health.

Full Backgrounder: Iowa House File 978 would regulate psilocybin access and benefit veterans’ mental health

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• Ibogaine is a psychoactive compound derived from the root bark of the Central African shrub Tabernanthe iboga, which has long been used in spiritual practices.  

• A growing body of scientific research is demonstrating the promise of ibogaine as an unconventional, but effective, treatment option for a wide range of mental health and neurological conditions, including opioid use disorder (OUD), post-traumatic stress disorder (PTSD), traumatic brain injury (TBI), depression, anxiety, multiple sclerosis (MS), and more. 

• Despite such wide-ranging potential, ibogaine’s classification as a Schedule I drug makes it difficult to study and presents a major federal roadblock toward expanding rigorous scientific research into innovative treatment approaches that can improve veterans’ lives and transform state spending on addiction and other mental health conditions. 

The promise of ibogaine treatment for mental health, addiction  

• Research by Stanford University published in Nature Medicine in 2024 found that ibogaine treatment immediately led to significant improvements in PTSD, depression, and anxiety in a cohort of 30 special operations veterans suffering from TBI.  

• The results were profound. According to Stanford Medicine, “[o]ne month after treatment participants experienced average reductions of 88% in PTSD symptoms, 87% in depression symptoms and 81% in anxiety symptoms,” relative to their condition prior to treatment.  

• Cognitive testing also revealed improved concentration, information processing, memory, and impulsivity among the veterans participating in the study.  

• A consistent theme emerges from clinical studies assessing ibogaine for opioid use disorder: ibogaine and ibogaine analogues are the only known treatments that consistently and immediately reduce both physical withdrawal symptoms from opioid addiction and psychological dependence without the need for ongoing medication.

• In a small-scale study, 75% of patients remained abstinent from opioids for an entire year following treatment. Ibogaine-assisted therapy has the potential to provide lasting anti-addictive effects after only one or two doses, potentially reducing relapse rates and associated mortality risk. This is particularly beneficial given the shortcomings of traditional treatments for OUD, such as methadone and buprenorphine.  

Emerging state interest in ibogaine’s treatment potential 

• Colorado voters decriminalized ibogaine in 2022, and the state’s Natural Medicine Advisory Board will consider adding ibogaine to its regulated, facilitated psychedelics access program in 2026. 

• Policymakers in several states—including Texas, Arizona, Ohio, Washington, and West Virginia—introduced legislation in 2025 to allocate state funds (including those drawn from states’ opioid settlement funds) toward clinical research trials that would demonstrate ibogaine’s potential for treating OUD and other mental health conditions.  

Takeaway: Ibogaine has the potential to transform the lives of millions of Americans struggling with addiction and mental health challenges. States can enact sensible legislation that advances research and development while maintaining a strong commitment to public safety and health. 

Read the full backgrounder:

The post Ibogaine offers major promise in treating addiction, mental health appeared first on Reason Foundation.

Oregon House Bill 2387 would improve regulations for the state’s professional psilocybin services market. The bill includes important regulatory improvements to Ballot Measure 109, which created the state’s psilocybin services market.

In Oregon, psilocybin services cannot currently be used to treat mental illnesses. Section 4 of HB 2387 would protect licensed medical practitioners who provide advice or oversee legal psilocybin services.

Many consumers may seek psilocybin services to treat a range of mental illnesses, such as depression. Under the current law, consumers of psilocybin must acquire services from someone other than their current therapist or a licensed practitioner to treat their mental illness. Consumers should be allowed to receive psilocybin services from the person they feel is most qualified.

This is why, last year, Colorado health agencies created a separate license for medical practitioners to oversee psychedelic services for their own upcoming psilocybin services market.

HB 2387 would update Oregon’s psilocybin services market with this important improvement.

The post Oregon House Bill 2387 would improve psilocybin services appeared first on Reason Foundation.

Coming on the heels of contribution rate changes enacted by the legislature in 2024, the move will add another critical guardrail in officials’ attempt to put PERS—only 56% funded with $26.5 billion in unfunded pension liabilities—on a path to solvency. However, despite the positive changes, poor market conditions still threaten to bankrupt the PERS pension trust fund. Additional reforms will be necessary for the 2026 legislative session.

The legislature began to tackle the PERS unfunded liability challenge in earnest for the first time in 2024 by enacting a new schedule of incremental increases that required employers to slowly contribute more to PERS over time, along with a one-time supplemental appropriation of $110 million of state surplus funds. These “Phase 1” moves were a good start but did not fundamentally alter the financial trajectory of PERS in a significant way. The legislature prudently opted to call for a new retirement benefit tier (known as “Tier 5”) for the 2025 legislative session, which manifested initially in Senate Bill 2339, then became embedded in the final version of House Bill 1, pairing pension reform with a major tax reform that will lower rates significantly.

The pension reform provisions contained within House Bill 1 will offer all new hires on or after March 1, 2026, a new hybrid retirement plan that combines a defined benefit component like previous tiers with a defined contribution component for added mobility:

• New members can retire at age 62 with at least eight years of membership service. Alternatively, they can retire at any age with at least 35 years of creditable service.
• New members are immediately vested in the defined contribution plan.
• All members will continue to contribute 9% of their earned compensation. For new members, 4% will be allocated to the defined benefit plan, and the remaining 5% will be directed to the member’s defined contribution account.
• Employer contributions will be applied to the system’s accrued liability contribution fund.
• The annual retirement allowance will include a member’s annuity equal to 1% of the average compensation for each year of creditable service.​
• For new members, “average compensation” is defined as the average of the eight highest consecutive years of earned compensation or the last 96 consecutive months of earned compensation, whichever is greater.

The Pension Integrity Project at Reason Foundation provided technical assistance to many stakeholders throughout the reform process, including the bill sponsors, legislative leadership in the House and Senate, and many individual legislators. We provided independent actuarial modeling during the process and advised legislative leadership and staff on design concepts.

The new Mississippi PERS Tier 5 hybrid retirement plan is similar to the reform designs enacted by several other governments, all of which have been successful in driving pension sustainability and have been fairly popular with employees:

• The United States moved to a hybrid retirement design for federal workers in 1987 under President Ronald Reagan after Congress passed the Federal Employees’ Retirement System Act of 1986, which blended the Federal Employee Retirement System, defined benefit with the Thrift Savings Plan, defined contribution into one combined benefit. The Thrift Savings Plan’s annual member satisfaction survey in 2024 found that 84% of federal workers were satisfied with their plan.
• All United States Uniformed Services (Department of Defense, United States Coast Guard, National Oceanic and Atmospheric Administration, and United States Public Health Service) moved to a hybrid military retirement plan called the Blended Retirement System, BRS, beginning in 2018. As of January 1, 2024, over 1.3 million members were enrolled in BRS, representing 68% of active members and 46% of Reserve and National Guard personnel.
• The hybrid plan design option has also been the most popular alternative to traditional pensions among state governments that have enacted major plan design reforms, with states like Tennessee, Georgia, Virginia, Pennsylvania, Washington, Oregon, Utah, and Rhode Island all transitioning one or more legacy pension designs to a hybrid approach.

The pension reform in HB1, combined with modest funding improvements enacted in 2024, represents two strong initial phases of reform critical to turning around decades of declining financial health in Mississippi PERS. However, a third (and potentially more) phases of reform remain critical targets for legislative action in 2026, as outlined in the recommendations section below.

How Mississippi got here

At the turn of the century, the Mississippi Public Employee Retirement System, PERS, faced a funding gap of $2.3 billion, with 87.5% of its obligations covered. Since then, the situation has deteriorated significantly, largely due to investment returns falling short of overly optimistic forecasts and a gradual reduction in those expectations to more realistic levels. As a result, PERS now carries an unfunded liability, or pension debt, exceeding $25 billion. 

Figure 1 breaks down the contributors to the pension debt, which include underperforming investments ($5.7 billion) and revised investment assumptions ($7.0 billion). Additionally, negative amortization—when contributions in a given year fail to cover that year’s interest on existing debt—has increased the shortfall by another $4.9 billion. The system’s cost-of-living adjustment (COLA), a fixed 3% annual increase, does not align with actual inflation and has grown to consume a larger share of payouts, further straining finances. Expected salary increases for employees that were never actually granted have slightly reduced the total unfunded liability.

Beyond these financial challenges, structural funding issues persist. As of 2025, PERS is in a tenuous position with costs that are extremely vulnerable to volatility in global investment markets. PERS actuaries have warned that contributions from employers–even at the increased 19.9% rate–are insufficient to pay off debt and fully fund promised pension benefits. According to system estimates, employers would need to contribute an amount equal to 22.4% of payroll to achieve full funding within 30 years. Maintaining the current insufficient statutory contribution rate will result in much slower and likely stagnant progress in eliminating the state’s pension debt, with tens of billions in debt remaining and accruing expensive interest over 50 or more years.

These projected outcomes are far worse if market returns are much lower than plan assumptions, which policymakers must account for. The ultimate cost of the pension system will grow significantly (adding over $13 billion) over the next 30 years if markets return the 6% average expected by market watchers. If the economy and pension system encounter two recessions over the next 30 years (Figure 2), the system is projected to run out of funding, which would force the state into a pay-as-you-go (paygo) funding policy, meaning benefits would need to be paid without the benefit of accrued investment savings. If PERS were to face insolvency, contributions from employers would need to rise above 49% of compensation (well above the current 22.4% requirement), costing taxpayers more than $27 billion in additional contributions over the next 30 years to pay for pension promises.

Explaining the reform

The new PERS tier (“Tier 5”) established in HB1 is a crucial step for Mississippi’s retirement system if it is ever going to recover from decades of underfunding. It reforms the system by enrolling all new hires into a hybrid plan and adjusting some of the other benefits associated with the pension, effectively slowing the growth of liabilities attached to public workers going forward. 

Instead of using all of their 9% contribution for a pension benefit, new hires enrolled in the hybrid Tier 5 benefit will see the same rate split between a pension and a defined contribution (DC) plan. Tier 5 employees will see 4% of their paycheck used to fund the pension portion, and 5% go toward an individual 401(a) account. PERS employers will continue to contribute the statutorily required amount equal to 19.9% of the total payroll, which will still be used to pay for the system’s unfunded liabilities.

The pension portion of the Tier 5 hybrid will secure a guaranteed lifetime benefit about half the size of Tier 4 (using a 1% multiplier in the benefit calculation instead of 2%). The calculation’s final average salary (FAS) portion will also use a member’s eight highest-paid years rather than the current four-year average used in Tier 4. The DC portion will give employees a more flexible benefit that will require no vesting period, be less vulnerable to inflation with returns accruing throughout employment and retirement, and be more portable to other jobs and retirement plans.

Tier 5 also adjusts some of the retirement eligibility requirements for the pension portion of the hybrid. Instead of eligibility beginning at age 60 or at 25 years of service, the pension portion of the new hybrid will be available at age 62 after 30 years of service or age 65 (eight years served minimum) or at any age after 35 years of service.

A final major change for new public hires in Mississippi will be that there will no longer be a guaranteed 3% COLA to insulate pension benefits from inflation. It will be possible for the legislature to grant benefit adjustments on a discretionary basis through legislative action, but COLAs will not be included in the liability and cost projections for Tier 5. While this aspect of HB1 will help mitigate future costs and risks, it also represents a significant shift in benefits offered to new hires, as discussed further below.

Analysis of HB1’s reforms

Mississippi’s pension reform aims to bend the PERS liability curve downward by slowing the growth of pension benefit accruals, making it somewhat easier for funding to catch up eventually. Actuarial modeling prepared by the Pension Integrity Project at Reason Foundation indicates that HB1 will likely achieve this goal if actuarial assumptions such as investment return and payroll growth prove accurate.

Because the Tier 5 hybrid plan reallocates retirement benefits from a defined benefit that serves a fraction of members to a defined contribution benefit (which cannot accrue a liability and cannot create unexpected costs), the growth of liabilities is expected to slow. Additionally, suspending costly COLA benefits for new hires has reduced the impact on the accrual of PERS benefits going forward.

Reason modeling of PERS shows a distinct long-term impact (Figure 3). Applying the new Tier 5 reform will ultimately reduce liability accrual by more than $80 billion by 2074.

This slowing of liability accrual gives Mississippi a better chance of achieving full funding. Reason modeling shows that the new benefit and funding structure could bring PERS to full funding at least a full decade sooner if market outcomes match plan expectations (Figure 4). This would have a significant impact on the overall costs for government employers and taxpayers.

Reduced liabilities and the much-improved trajectory of PERS funding will likely generate significant savings over the long run. Looking at both projected unfunded liabilities and all employer contributions to the plan, this reform is projected to save $6.5 billion over the next 30 years and over $17 billion over the next 50 years. Importantly, the risk-reducing features of the reform go a long way in managing these costs under less-than-ideal market scenarios. According to Reason’s modeling, this reform would save more than $30 billion if PERS were to experience multiple recessions and returns below the current 7% expectation over the next 50 years.

Mississippi policymakers should be warned that, while this reform does reduce long-term costs, it is not projected to reduce the chances of PERS becoming insolvent and exhausting all assets. Figure 5 shows the projected funded ratio of the reformed system, both under a scenario of 7% annual returns and one that involves two recessions and returns below expectations (6%). Comparing these outcomes to the pre-reformed system (Figure 2), a less-than-ideal investment outcome still results in plummeting and eventual exhaustion of funding. HB1 has not eliminated the danger of insolvency facing PERS, which must be addressed in future reforms.

Assessing the Tier 5 benefit

Another advantage to Mississippi’s Tier 5 reform is that it will offer a retirement benefit that better reflects the evolving needs of new hires today. Pensions tend to reward lifetime employees or those who stick around their entire career. This type of employee is increasingly rare in both the private and public sectors. According to Reason’s analysis, PERS expects most new hires to have left by year five, years before the pension’s steep eight-year vesting requirement. That means the current pension offers little to most of the state’s new workers.

Retirement plans must adapt to meet the needs of today’s employees. Hybrid plans balance risk between employers and employees while offering more flexibility than traditional pensions. Employers benefit from reduced financial exposure, while employees—who often change jobs before qualifying for a full pension—gain some portability and access to market-driven growth. Unlike Tier 4, which requires workers to leave their contributions in the plan with minimal interest or withdraw them—often forfeiting employer contributions—a hybrid plan allows employees to take the defined contribution (DC) portion with them when they move to a new job.

New employees will enjoy more than just the benefits of modernized flexibility in the Tier 5 hybrid. The DC element of the hybrid is expected to improve retirement benefit outcomes for most new hires. Figure 6 compares the estimated value of the PERS DB plan, the new Tier 5 hybrid, and a pure DC plan. To compare the value of one plan type to another, the analysis calculates the amount that could be generated in annual annuity payments (meaning guaranteed lifetime benefits) for someone hired at age 32 at increasing years of service. 

The analysis shows that the new Tier 5 benefit actually outpaces the retirement value generated by the state’s pension until year 30, at which point the pension provides a slight advantage. Keeping in mind that very few newly hired members (less than 10%) stay in their position for 30 years, it is clear that the HB1 Tier 5 hybrid actually provides a greater benefit for the vast majority of PERS members. 

This analysis also includes the accrued annual lifetime benefits that an employee could earn from a pure DC plan with 9% employee and 5% employer contributions. The advantages of a DC plan of this type would further improve the retirement offerings to public workers. Mississippi policymakers should consider granting a full DC plan as an option to new hires.

A pure DC option could also address one of the primary concerns expressed about the Tier 5 hybrid. Since no COLA benefit will be provided for the DB portion of the hybrid, new public employee hires will see part of their retirement reduced over time from year-to-year inflation. The DC element of the hybrid will grow with market returns, providing at least some cushion from the loss of COLA benefits. Still, having no COLA will represent a significant recalibration of expectations from legacy to new hires in Mississippi. To further alleviate this concern, lawmakers should give employees the ability to select a full DC plan instead of the new hybrid, which would eliminate any concerns about managing a fixed lifetime benefit with no protection from inflation

Completing the reform to prevent MSPERS insolvency — framing a 2026 policy agenda

The new Tier 5 benefit design included in HB1 is a necessary and critical step in addressing the state’s growing pension challenges. The new Tier 5 plan design alone will not solve the PERS underfunding crisis, however, and state lawmakers need to continue to seek an additional Phase 3 of reforms in 2026 to avoid insolvency and secure PERS for future generations.

Recommendation 1: Fix the broken PERS’ funding policy

Pension Integrity Project modeling of PERS indicates that while the hybrid plan for new hires will improve the system’s trajectory, the system will remain at risk of insolvency under recession scenarios. The main culprit threatening the state’s pension funding will continue to be its rigid contribution policy with rates set in statute rather than adjusting each year to achieve a payoff goal. The current approach represents a failed pension funding policy, as it:

• Is the primary reason PERS remains underfunded today and is structurally underfunding PERS every single year;
• Has no relation to actuarial calculations nor is it set to achieve full funding;
• Pretends that 19.9% has some objective meaning other than being the rate policymakers today would prefer to pay into the PERS system; and 
• Sacrifices long-term funding needs for year-to-year cost stability. 

Looking to the next legislative session, policymakers should pursue reforms to establish a more reflexive annual contribution that will avoid the long-standing systematic underfunding issues that have thrust the state into the current pension debt quagmire. Using an actuarially determined employer contribution (ADEC) is considered the gold standard policy for responsibly funding pension benefits. Still, there are many incremental steps in between that would improve the state’s current statutory approach. Any effort to accelerate the growth of the system’s assets–for example, a supplementary contribution or any type of contribution increase–will not only better secure PERS, but it will also end up saving taxpayers tremendous amounts of money by avoiding decades of expensive interest on the burdensome pension debt.

Recommendation 2: Adopt an optional defined contribution (DC) retirement plan

The new hybrid plan is a notable step toward meeting the flexibility needs of the modern workforce, but state policymakers missed out on a major opportunity to make PERS more valuable to a broader set of potential new hires. 

With the creation of individual 401(a) plans for the DC side of the hybrid in Tier 5, it would be easy for PERS to now offer a full DC retirement plan option for those who want to take advantage of this type of retirement plan. Offering an option to have all contributions go to a DC plan would expand the system’s ability to serve more unique employee situations and would do so while actually reducing the risk of runaway costs even more than the new hybrid approach. Several state-run retirement plans have enjoyed success in offering a full DC option, and Mississippi’s lawmakers should prioritize this in the 2026 session.

Conclusion

Through several years of study and coalition building, and with the assistance of the Pension Integrity Project, Mississippi policymakers have enacted a reform that will greatly improve the long-term viability of its retirement plan for public workers. The reformed Tier 5 benefit for new public employee hires will establish a more balanced and risk-managed plan that works better for most employees and the taxpayers who fund the system in the end. The reform is a clear, positive step in improving the system’s long-term solvency and will improve the chances of achieving crucial long-term funding goals. However, it should be clear to policymakers that the work in Mississippi is not done, as PERS remains very much at risk in the face of a volatile and unpredictable future. 

To complete the state’s path toward a comprehensive reform, lawmakers must next address longstanding funding issues with changes to the annual contribution policy. They should also set up an optional DC plan for public employees, improving the retirement benefits for most of those beginning employment. These steps would better secure PERS for future generations and reduce expensive debts that have created massive unexpected costs for Mississippi taxpayers.

Additional resources

• Mississippi PERS Data & Modeling: Pension Integrity Project Dashboard
• Commentary: A New & Necessary Approach to Mississippi’s Pension
• Commentary: Mississippi PERS’ $25 Billion Problem
• Commentary: Mississippi’s Low Pension Contributions Cause S&P Global to Downgrade Its Credit Outlook
• Commentary: Modernizing PERS to Serve Mississippi’s Public Workforce
• Commentary: Mississippi Municipalities Should Brace for Higher Pension Contributions
• Commentary: Mississippi Needs to Fix the Way It Pays for Public Pensions
• Commentary: Mississippi Lawmakers Can Take the Best from Other Successful State Pension Reforms

Full Explainer: Does the hybrid plan established in HB1 meet the objectives for good pension reform?

The post Mississippi adopts hybrid retirement design in major pension reform appeared first on Reason Foundation.

Senate Bill 219, the Medical Psilocybin Act, would create a regulated system to allow patients with qualifying conditions (PTSD, substance use disorders, and end-of-life care) to access and use psilocybin under the guidance of a licensed healthcare provider. New Mexico would join Colorado and Oregon in authorizing facilitated use programs for innovative therapeutic care.

• The program will be managed by the Department of Health (DOH) and a nine-person Medical Psilocybin Advisory Board. Among other duties, the board will oversee the collection and analysis of program results and will include representatives from a tribe, nation, or pueblo and a veteran of the US armed services, among others.DOH will oversee the program, establish training for clinicians and producers, and license producers to grow mushrooms and process psilocybin. DOH will be responsible for determining program aspects such as dosage, administration, production, and storage. DOH will also have authority to expand upon qualifying conditions for treatment.Under SB 219, psilocybin therapy will require at a minimum a preparation session, an administration session and a follow-up integration session, all in DOH-approved settings. 

• SB 219 would retain current prohibitions on the commercial manufacture and sale of other psychedelic compounds, and prohibits synthetic psilocybin, as well as driving intoxicated.

Full backgrounder: New Mexico Senate Bill 219 would regulate medical psilocybin access

The post New Mexico Senate Bill 219 would regulate medical psilocybin access appeared first on Reason Foundation.

The emerging regulatory framework governing certain controlled substances across various states—including medical and adult use recreational cannabis and psychedelics—is an area of particular interest. We have advised officials on emerging drug policy transformations in states like Michigan, California, and Nevada. We are also a founding member of the Cannabis Freedom Alliance, which seeks to advance federal cannabis legalization in a manner that respects states’ autonomy to self-design their own policies. We also seek to minimize barriers to market entry for potential entrepreneurs to ensure a competitive and dynamic marketplace in which even Americans of modest means can compete.

We believe there are several legislative approaches that could improve access to psychedelic-based medicine

Pass the Breakthrough Therapies Act

Introduced by Sens. Rand Paul (R-Ky.) and Cory Booker (D-N.J.), the Breakthrough Therapies Act would automatically reschedule any substance recognized by the Food and Drug Administration (FDA) as a “breakthrough therapy” so medical research can be conducted more easily. Currently, this designation applies to analogues of both MDMA and psilocybin that have both advanced to Phase III clinical trials.

The original bill proposed to reclassify such substances from Schedule I to Schedule II so that drug sponsors face fewer barriers in procuring a DEA license to conduct medical research. However, we believe the act should go further by automatically moving psychedelic substances to Schedule III to better facilitate research and data collection. Currently, supervised clinical administration of these substances is available in both Colorado and Oregon through state-licensed facilities. Licensees in Oregon have already administered more than 12,000 clinical doses of psilocybin–more than the total of all federally supervised clinical trials to date. A Schedule III designation would simultaneously allow these centers to collect important research data on the drugs’ effectiveness that could be useful for FDA evaluations of these treatments and remove federal income tax penalties and barriers to financial services for the licensees that offer these clinical services. This approach would also better respect state authority and rebalance the federal system.

The current Schedule I designation has a chilling effect on scientific research and discourages some of the best research institutions, including hospitals and universities, from investigating these treatments. Potential financial supporters are also dissuaded from investing dollars that cannot be used efficiently or, at worst, could implicate them as accomplices to a federal crime.

Expand the use of observational data

Through the 21st Century Cures Act, Congress mandated that the FDA use observational (“real world”) evidence in drug approval decisions. However, the Act did not provide enough specificity to be relevant to psychedelic clinical trials. Many pharmaceutical compounds going through clinical trials are substantially similar to psychedelics that are legal in other parts of the world or have a long history of both safety and efficacy.

MDMA, for instance, was unregulated until 1985 and is currently available for prescription in Australia. Psilocybin is legal to possess in Colorado and is available through authorized providers in Oregon. Multiple companies are currently taking similar versions of MDMA and Psilocybin through clinical trials.

Ibogaine is another psychedelic compound that has shown promise in the treatment of opioid use disorder. Under current regulations, any drug company developing an ibogaine-based compound would need to spend many millions of dollars replicating early trials that have already been documented at foreign clinics.

Other psychedelic compounds have been used for thousands of years by indigenous communities and continue to be used frequently around the world. Congress could require that the FDA develop clear guidelines to specify how observational data alone could be compiled and data mined to meet FDA requirements for demonstrating safety and efficacy.

Reform the efficacy requirement

In 1962, Congress reformed the Food, Drug, and Cosmetic Act to require that drug sponsors prove not only that their drugs are safe for human consumption but also their level of efficacy. This ballooned the cost of drug development by many years and hundreds of millions of dollars. The average cost of drug development has been estimated to now exceed $1.7 billion, and development takes more than a decade to complete. A Reason Foundation review of research demonstrates that far more Americans die from potentially treatable diseases due to this expanded timeline than are saved by the FDA’s original mission to ensure safety alone.

Congress could follow Japan’s example and allow the provisional commercialization of drugs once sponsors have demonstrated to regulators they are safe for human consumption (by, for instance, passing Phase I or Phase II trials).

Legislatively reclassify psychedelics

Many psychedelic compounds were initially placed on the list of Schedule I substances without a comprehensive public evaluation. Congress has full discretion to alter the classification of any substance within the Controlled Substances Act that it feels holds medical and scientific value. Reclassifying psychedelic compounds to Schedule III would still give the FDA supervision over these compounds.

As an alternative to reclassifying specific substances through legislation, Congress could also require the FDA and DEA to review their criteria for placing compounds within Schedule I of the Controlled Substances Act. The agencies should apply objective and universal criteria for comparable drugs on Schedules III or below.

Currently, agencies have broad discretionary power within the DEA’s eight-part test to determine the scheduling of a drug, and there is no uniform standard by which drugs are measured. The U.S. Department of Health and Humans Services recently recommended that cannabis be removed from Schedule I out of recognition that it holds medical benefits. Psilocybin is similar to cannabis’ safety profile on many public health indicators and demonstrates a low potential for addiction or as a cause of violent crime.

It is likely that many important psychedelic substances would automatically be reclassified if they were scored on similar metrics to comparable drugs that currently fall within a lower schedule.

Pursue greater cost-effectiveness of existing public health spending

Much of the funding for clinical trials into psychedelic substances currently originates from philanthropic sources. This funding is sporadic and limited. However, psychedelic therapies might more cost-effectively treat many conditions for which Congress currently allocates billions of dollars toward treatment. Psychedelic therapies have shown promise in the treatment of post-traumatic stress disorder, major depressive disorder, treatment-resistant depression, traumatic brain injury, substance abuse, and even neurodegenerative conditions like Alzheimer’s and Parkinson’s Disease. There are multiple state bills or projects considering scientific funding of Ibogaine to help with regional opioid addiction. Public-private partnerships between the state, philanthropy, and manufacturing companies might help reduce the overall cost of opioid-related treatments through Ibogaine-assisted therapy. 

Some of these conditions may be successfully treated through psychedelic therapy after only a single administration, whereas current treatments may require a lifetime of ongoing treatment.

Congress should consider a task force to model the pharmacoeconomics of psychedelic therapy to determine whether these treatments could reduce costs within federal healthcare spending.

Policymakers should note that psychedelic treatment involves more than just substances—it also requires a novel type of therapy. Therefore, a pharmacoeconomic analysis of psychedelic therapy must incorporate the cost of professional care.

Psychedelics-assisted therapy represents a promising treatment for many mental health issues.

The post Legislative approaches that could improve access to psychedelic-based medicine appeared first on Reason Foundation.

• Arizona Public Safety Personnel Retirement System, PSPRS, Tier 3 arose from a bipartisan, stakeholder-negotiated pension reform in 2016, after a rapid freefall saw PSPRS decline from 120% funded in 2001 to nearly 40% funded by 2016.
• Tier 3 included a risk-managed pension design with a 50/50 contribution rate split between employers and employees, consistent with many other state pension systems, including the Arizona State Retirement System, Washington State’s public safety pension, and Michigan’s teacher pension.
• 50/50 cost sharing is foundational to Tier 3 risk management and a key reason employers have felt confident enough in PSPRS’ trajectory to make $5 billion in supplemental contributions since 2019, improving PSPRS to nearly 70% funded today.

Senate Bill 1365 would break Tier 3’s 50/50 cost-sharing mechanism and risk higher taxpayer costs

• Senate Bill 1365 would cap the contribution rate paid by Tier 3 employees at 9.5% and require employers to cover any needed remainder in the likely event of underperforming markets.
• Reason Foundation’s actuarial modeling for PSPRS forecasts that SB 1365 could result in taxpayers being required to cover approximately $1 billion in unanticipated additional costs over the next 30 years, assuming market conditions similar to those seen since 2000.
• Applying a cap on employee contributions would return to the types of design features that allowed PSPRS to get over $10 billion underfunded.

SB 1365 unlikely to affect recruitment & retention

• The push to cap employee contribution rates in PSPRS Tier 3 is rooted in the idea that it would help improve recruitment and retention, but states where pensions already have caps on employee contribution rates have also seen recruitment and retention challenges. 
• Studies and actual employee turnover data show that pensions rank far down the list of employee priorities compared to others like salary, flexibility, work-life balance, job satisfaction, and upward mobility.
• States that have expanded employee pension benefits under similar logic since the Great Recession have seen higher costs but no discernable change in recruitment and retention.

Takeaway

With over $7 billion in unfunded liabilities remaining to tackle, it would be poor financial stewardship to fundamentally alter the design of a successful PSPRS reform only seven years into a multidecade turnaround project, especially given the weak influence pensions have on employee recruitment and retention.

Full Backgrounder: Arizona Senate Bill 1365 threatens higher taxpayer costs and pension risks 

The post Arizona Senate Bill 1365 threatens higher taxpayer costs and pension risks  appeared first on Reason Foundation.

• The Arizona Department of Health Services will develop rules, regulations, and licensure requirements for therapy centers and health professionals, as well as guidelines for psilocybin cultivation, testing, and transport.  
• Administration of psilocybin may take place only on the premises of a licensed facility; patients may never take psilocybin products home.  
• A counseling session from licensed professionals is required before consumers can schedule a subsequent appointment to be administered psilocybin. 
• SB1555 does not legalize or decriminalize psilocybin and would retain current prohibitions on the possession, manufacturing, and sale of other psychedelic compounds. 
• Similar programs have already been established or approved in Colorado, Oregon, and Utah.  

Promise of psilocybin-assisted therapy 

• Over the past decade, the medical and mental health communities have increasingly recognized the potential of psychedelic therapies for the treatment of intractable mental health conditions like addiction, anxiety, depression, PTSD, and other disorders. 
  • Psychedelics are demonstrating the potential to be more effective than conventional drugs now being used to treat a range of mental health disorders. 
  • Legal and logistical barriers to innovation persist even as the range of potential uses for psychedelic substances has expanded. 
• In 2018 and 2019, the U.S. Food and Drug Administration granted a “breakthrough therapy” designation to psilocybin-based treatment for major depressive disorder and severe treatment-resistant depression, and 14 active FDA Phase II or Phase III clinical trials are underway today.  
  • Psilocybin has low physiological toxicity, low risk of abuse or addiction, safe psychological reactions, and no linked persistent harmful physiological or psychological effects during or after use, according to thousands of years of anecdotal data as well as contemporary scientific investigations. 
• A 2024 article in the academic journal Brain Sciences reviewed a dozen high-quality studies on the therapeutic effects of psilocybin administration, concluding: “[…] A quantitative analysis of the studies indicates that psilocybin is highly effective in reducing depressive symptoms severity among patients with primary [Major Depressive Disorder] or [Treatment Resistant Depression]. Both single-dose and two-dose psilocybin treatments significantly reduced depressive symptoms severity, with two-dose administration sometimes yielding more pronounced and lasting effects.” 
• A 2024 meta-analysis published in the medical journal BMJ found that “psilocybin use showed a significant benefit on change in depression scores compared with placebo […] consistent with other recent meta-analyses and trials of psilocybin as a standalone treatment for depression or in combination with psychological support.” 

Takeaway

SB1555 creates a regulated, limited program to access psilocybin, which has shown tremendous promise in the therapeutic treatment of a range of neurological and mental health conditions, with minimal risk to both public safety and public health. 

Full Backgrounder: Regulating legal psilocybin access in Arizona would benefit mental health

The post Legalizing psilocybin access in Arizona would benefit mental health  appeared first on Reason Foundation.

This dashboard compiles the key elements of governmental financial statements for fiscal years 2020, 2021, and 2022, covering all 50 states and the top 100 municipalities, counties and school districts.

A historical challenge in comparing the financial health of state and local governments has been that these entities do not prepare their financial statements in a machine-readable format. In some cases, certain reporting entities also fail to adhere to governmental accounting standards generally accepted in the United States.

Reason Foundation has responded to this gap by developing a proprietary automated approach to data extraction of key elements from the financial statements, the results of which are subsequently confirmed by manual human review.

We hope to provide valuable insights for policymakers, journalists, market participants, and other stakeholders by placing their state, municipality, county, or school district in contrast to their peers – and the broader context of the country.

At the end of fiscal 2022, five state governments had more than $200 billion in total liabilities: California, Illinois, New York, New Jersey and Texas.

Massachusetts had over $100 billion in total liabilities, Connecticut and Washington had over $90 billion, and Pennsylvania, Florida and Maryland each had over $60 billion in total liabilities at the end of fiscal 2022.

From the 2020 fiscal year through the 2022 fiscal year, 47 states saw increased revenues. Alaska, Michigan, and Wyoming were the three states that did not increase revenues.

During the same 2020-2022 period, total assets, such as growth in cash, investments, receivables, land, buildings, and infrastructure, increased for all 50 states.

The increase in assets helped 49 states, every state except North Dakota, reduce its state debt ratio, which is defined as the proportion of total liabilities to total assets from fiscal year (FY) 2020 to FY 2022.

At the end of the 2022 fiscal year, the 50 state governments held $1.03 trillion in employee-related debt, including $502 billion in net public pension liabilities and $524 billion in net other post-employment benefit liabilities, such as promised medical benefits for retirees.

For the tool’s full interactivity and options, please visit https://debttrends.transparencyproject.reason.org.

State debt: California, Illinois, New York, New Jersey and Texas each have over $200 billion in total liabilities

County debt: Los Angeles, Philadelphia, Denver, Miami-Dade and Cook counties among worst in nation

City debt: New York has more than four times the liabilities of Chicago, Los Angeles, Houston and other cities

The post Debt trends for state and local governments 2020-2022 appeared first on Reason Foundation.

Thank you for the opportunity to submit technical comments regarding Michigan House Bill 6060. 

The bill you are considering today would have profound consequences for your teacher pension system, for the entire public K-12 education system in Michigan, for the ability of Michigan’s school districts to manage their budgets and financial health for the long term, and for every public service offered by the state. While the costs associated with the bill are breathtaking—between $17 billion to $20 billion in guaranteed new school district spending over the next 30 years—the risks to K-12 service delivery and long-term school district financial solvency are even more extreme. 

Due to its far-reaching implications, a bill of this magnitude demands rigorous analysis. However, this bill has not received a proper actuarial analysis, a critical step for understanding how decisions impacting every K-12 hire today can ripple out decades into the future and move in unforeseen directions. In fact, actuarial analysis of proposed pension benefit changes of this magnitude is actually required by law in Michigan under MCL Section 38.1140h, a step that did not happen during the House process of passing the bill. We commissioned a legal analysis from the Grand Rapids-based Plunkett Cooney law firm to inform our assessment of the updated legislation. 

The entire letter is available here, and the summary conclusion is as follows:  

“[I]t is our opinion that the amendments in HB 6060 to the Public School Employees Retirement Act will result in increases to employees’ pension benefits. That increase triggers the requirements of MCL 38.1140h(5) which include seven days notice and a supplemental actuarial analysis of the impact of the proposed changes on the pension funds.” 

Despite the seeming violation of state law associated with House passage, we have built a robust actuarial model for the Michigan Public School Employees Retirement System, MPSERS, to help policymakers and stakeholders understand the potential impacts of HB 6060. 

The Great Recession was devastating for teacher pension systems across the country, generating hundreds of billions of dollars in underfunded liabilities, driving up retirement-related spending for public K-12 systems, and forcing money intended for the classrooms to be spent on higher payments to cover the retirement of past educators. MPSERS was no different and arguably was hit harder than most, as the legislature had failed to fully fund the annual required actuarial contributions to the plan for several years prior. Accordingly, MPSERS entered the Great Recession with approximately $9 billion in unfunded liabilities in 2007, which skyrocketed to nearly $25 billion by 2011.  

This prompted one wave of reform in 2012 that made some fairly small improvements around the edges, but that reform failed to meaningfully move the needle on cost and risk due to a flawed design. In 2017, the legislature enacted the current plan design of MPSERS to avoid a doubling of unfunded liabilities and annual pension contributions, which are already projected to exceed $5 billion per year in the coming decades. The logic was to offer all new teachers a choice of two risk-managed plan designs, a defined contribution plan or a risk-managed hybrid pension design that splits costs and risks equally with teachers, a fair and even balance when considering that the teacher then receives a 100% taxpayer guaranteed retirement for life. This was an improvement upon the previous benefit tier, where teachers were covering two-thirds of their pension costs. 

Since the 2017 reform took effect, the legislature has enacted a range of additional improvements to funding policy, assumptions setting, and other key pension mechanisms on a bipartisan basis. Some of these improvements involved recognizing previously hidden underfunding and aggressively moving to pay down MPSERS’ unfunded liabilities much faster. Today, MPSERS stands at $29 billion underfunded, but it also now has several key financial guardrails in place, such that there is a realistic plan to pay off that debt within the next 15 years. 

HB 6060 would place all new hires into a re-risked pension system instead of a de-risked one by eliminating critical protections against financial risk. The bill eliminates employee contributions to their pensions, forcing public school districts to bear nearly the entire cost.  It also allows the purchase of five years of credited service for all teachers and guarantees a 6% conversion rate on those liabilities.   

Our analysis and actuarial modeling find that:  

• House Bill 6060 will add between $17 billion to $20 billion in new employer costs over the next few decades, depending on market performance. Because the recently enacted 15.21% rate cap for employers applies to unfunded liability payments and not to normal costs, making up the loss of employee contributions will be entirely placed on school districts and university employers. 

• HB6060 would require immediate increased additional annual employer contributions of between 7 to 10 percent of payroll that would persist for at least the next 30 years.  

• If MPSERS were to hit all of its assumptions and pay off all of its current unfunded liabilities by 2037 as planned, the annual employer “normal cost” contributions under HB 6060 contributions would be 13.7% in perpetuity, nearly double the 7% employer normal cost today. 

Further, transferring current defined contribution account balances to MPSERS pension at the current discount rate would create a major immediate financial risk of immediate underfunding of those transferred liabilities. The bill would allow defined contribution plan participants to abandon their plan, transfer up to five years of credited service toward an actuarially equivalent pension benefit, and join the defined benefit plan. The member’s previously earned service would be transferred using a relatively high discount rate of 6.0%. Such transfers would create the risk of a pension-obligation-bond-like situation where any downturn in market performance (meaning, any year where investment returns underperform 6%) or any future lowering of the MPSERS assumed rate of investment return would generate immediate unfunded liabilities. The bill would further allow a first-of-its-kind purchase of defined benefit service by defined contribution members who have at least 10 years of service. This means that a five-year purchase of service option is available to every single teacher in Michigan, regardless of which plan (DB or DC) they choose.  

In conclusion, HB 6060 would reverse decades of responsible pension reform, skyrocket pension costs, make it almost impossible to increase teacher salaries in perpetuity, and force local governments to make difficult spending tradeoffs with the rest of their budget in order to put more resources toward MPSERS. The move would also likely be viewed as a credit negative by the rating agencies, who looked favorably upon the 2017 reform as being a credit-positive factor for the state’s long-term financial stability. Instead of moving backward, we believe the legislature should focus on restoring the funding that it diverted from MPSERS this year in order to remove pension debt from the state’s books as fast as it can.  

Read the full legal analysis: Michigan House Bill 6060 Legal Opinion for Reason Foundation

The post Legal analysis suggests Michigan House Bill 6060 violates state law appeared first on Reason Foundation.

Thank you for the opportunity to provide testimony on Michigan Senate Bills 165-167, which propose significant changes to the Michigan State Employees’ Retirement System, SERS, and State Police Retirement System. These bills would dramatically increase costs for specific employee groups, including corrections officers, by removing new hires from the SERS defined contribution (DC) retirement plan and placing them in the hybrid pension plan currently available to state police officers. Additionally, the bills would allow current SERS employees to purchase years of service credit in the state police defined benefit plan, up to the total years they have contributed to SERS.  

Fiscal impacts 

Defined benefit pensions rely on several actuarial assumptions to be accurate. If they aren’t, unfunded liabilities begin to accumulate. As of today, Michigan still has $49 billion worth of unfunded pension liabilities to pay off. With that amount of debt still left to pay off, it was surprising to see these bills pass the Senate without a single study on potential cost impacts. Only a single sentence in the three-page fiscal note mentioned potential risks. It stated:  

“Other unfunded liabilities could accrue in the future if actual conditions failed to meet actuarial assumptions … but future liabilities are not known, assumed, or calculated in this analysis.” 

As a pension proposal of this magnitude will require generations of employers and taxpayers to pay for benefits, the evaluation of this legislation is required to be better than “not known, assumed, or calculated.” Therefore, we built our own actuarial model to study the long-term costs of this proposal, and the results show that this pension swap would have a major impact on both required employer contributions and the funded status of the state police pension system.  

Under a best-case scenario, where 100% of plan assumptions are met 100% of the time, the additional cost of this pension proposal would be just north of $800 million over the next 30 years. Because assumptions are never met 100% of the time, it’s important to look at what would happen under a scenario with more realistic investment returns. If the next 30 years of investment experience matched the previous 30, with multiple major market losses, this proposal could cost up to $1.85 billion.  

Recruitment and retention 

While proponents of these bills suggest that shifting these employee groups to the state police pension plan will improve staffing levels, we have yet to see experience play out in other states that show one retirement plan design is better than another for overall recruitment and retention. It is also important to recognize that, based on most non-partisan surveys of employees, today’s workforce increasingly values and needs portability and flexibility in retirement benefits. Therefore, we have strongly advocated for at least offering an optional defined contribution plan to new employees because it would align more closely with the career mobility patterns of modern employees. Unfortunately, that option would be completely removed for all new employees covered by these bills because the SERS DC plan would be closed to new entrants.  

States like Michigan that have moved toward offering portable plans to public employees have seen improvements in long-term fiscal stability while still offering robust retirement benefits. Enhancing the existing DC plan with targeted longevity bonuses, rather than reverting to a legacy DB system with unknown future costs, could achieve the same recruitment and retention goals without laying “not known” costs on taxpayers and jeopardizing the state’s financial health. 

Full Testimony: Michigan Senate Bills 165-167

The post Michigan Senate Bills 165, 166, and 167 would increase public pension costs appeared first on Reason Foundation.

Michigan House Bill 6060 would have profound consequences for your teacher pension system, for the entire public K-12 education system in Michigan, for the ability of Michigan to manage its state budget for the long term, and for every public service offered by the state. While the costs associated with the bill are breathtaking—between $17 billion to $20 billion in guaranteed new state and school district spending over the next 30 years—the risks to K-12 service delivery, long-term school district financial solvency, and the entire state budget are even more extreme. 

Due to its far-reaching implications, a bill of this magnitude demands rigorous analysis. However, this bill has not even been accompanied by a fiscal note, let alone a proper actuarial analysis–both of which are critical to fully understand how decisions impacting every K-12 hire today can ripple out decades into the future and move in unforeseen directions. Fortunately, we have built a robust actuarial model for the Michigan Public School Employees’ Retirement System, MPSERS, to help you understand the potential impacts of House Bill 6060. 

The Great Recession was devastating for teacher pension systems across the country, generating hundreds of billions of dollars in underfunded liabilities, driving up retirement-related spending for public K-12 systems, and forcing money intended for the classrooms to be spent on higher payments to cover the retirement of past educators. MPSERS was no different and arguably was hit harder than most, as the legislature had failed to fully fund the annual required actuarial contributions to the plan for several years prior. Accordingly, MPSERS entered the Great Recession with approximately $9 billion in unfunded liabilities in 2007, which skyrocketed to nearly $25 billion by 2011.  

This prompted one wave of reform in 2012 that made some fairly small improvements around the edges, but that reform failed to meaningfully move the needle on cost and risk due to a flawed design. In 2017, the legislature enacted the current plan design of MPSERS to avoid a doubling of unfunded liabilities and annual pension contributions, which are already projected to exceed $5 billion per year in the coming decades. The logic was to offer all new teachers a choice of two risk-managed plan designs, a defined contribution plan or a risk-managed hybrid pension design that splits costs and risks equally with teachers, a fair and even balance when considering that the teacher then receives a 100% taxpayer guaranteed retirement for life. This was an improvement upon the previous benefit tier, where teachers were covering two-thirds of their pension costs. 

Since the 2017 reform took effect, the legislature has enacted a range of additional improvements to funding policy, assumptions setting, and other key pension mechanisms on a bipartisan basis. Some of these improvements involved recognizing previously hidden underfunding and aggressively moving to pay down MPSERS’ unfunded liabilities much faster. Today, MPSERS stands at $29 billion underfunded, but it also now has a number of key financial guardrails in place, such that there is a realistic plan to pay off that debt within the next 15 years. 

House Bill 6060 would eliminate critical protection against financial risk by eliminating employee contributions to their pensions (forcing the state and public school districts to bear the entire cost), allowing five years of credited service purchase, and guaranteeing a 6% conversion rate on those liabilities, and allowing all new hires to enter a re-risked pension system instead of a de-risked one. 

Our analysis and actuarial modeling find that:  

• House Bill 6060 will add between $17 billion to $20 billion in new employer costs over the next few decades, depending on market performance. Given that the legislature just lowered the cap on local school district MPSERS contributions, this means that the state is likely to bear the majority of responsibility for these costs, which will impact every other area of state government and crowd out spending on other important services. 

• HB 6060 would require immediate increased additional annual employer contributions of between 7 to 10 percent of payroll that would persist for at least the next 30 years.  

• If MPSERS were to hit all of its assumptions and pay off all of its current unfunded liabilities by 2037 as planned, the annual employer “normal cost” contributions under HB 6060 contributions would be 13.7% in perpetuity, nearly double the 7% employer normal cost today. 

Further, transferring current defined contribution account balances to MPSERS pension at the current discount rate would create a major immediate financial risk of immediate underfunding of those transferred liabilities. The bill would allow defined contribution plan participants to transfer up to five years of credited service toward an actuarially equivalent pension benefit, but their previously earned service would be transferred using a relatively high discount rate of 6.0%. Such transfers would create the risk of a pension-obligation-bond-like situation where any downturn in market performance (meaning, any year where investment returns underperform 6%) or any future lowering of the MPSERS assumed rate of investment return would generate immediate unfunded liabilities. 

In conclusion, HB 6060 would reverse decades of responsible pension reform, skyrocket pension costs, make it almost impossible to increase teacher salaries in perpetuity, and force appropriators to make difficult spending tradeoffs with the rest of the state budget in order to put more resources toward MPSERS. The move would also likely be viewed as a credit negative by the rating agencies, who looked favorably upon the 2017 reform as being a credit-positive factor for the state’s long-term financial stability. Instead of moving backward, we believe the legislature should focus on restoring the funding that it diverted from MPSERS this year in order to remove pension debt from the state’s books as fast as it can.  

Full Testimony: Michigan House Bill 6060

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