Qiushi Wang

An Empirical Analysis of State and Local Public Pension Plan Funded Ratio Change, 2001-2009

Between 2001 and 2009, all public pension plans suffered losses and saw a drop in their funded ratios. However, some plans saw a much smaller decline than others. In this study, we explore why the ratios fared so differently during this tumultuous period for pension plans. By examining the changes in funded ratio for 84 large public pension plans, we find that the differences can be mostly attributed to variations in annualized investment return and changes in investment return assumption, and to a lesser extent, to the required contributions paid by employers, the contribution rates of employees, and cost-of-living adjustment provisions. The results suggest that pension plans seeking to improve their funded ratios may need to revise their investment strategies, pay a higher percentage of their required contribution, require employees to pay more toward their pension benefit, and limit the use of automatic or consumer price index–linked cost-of-living adjustments.

How Does the Health of Transportation Infrastructure Affect State Credit Ratings? An Empirical Analysis

A well-developed and carefully maintained public infrastructure system is of critical importance to ensure that the economy can function effectively. To investigate the consequence of deficient public transportation infrastructure conditions on states’ creditworthiness, this study constructs an infrastructure health index to measure the physical conditions of state highway transportation systems and empirically estimates the effect of the overall health of state highway transportation infrastructure on Moody’s and Standard and Poor’s state credit ratings by using a data set from 1999 to 2009. The empirical results indicate that the poorer the quality of a state’s highway infrastructure, the lower the probability that the state will be in a higher credit rating category, and the higher the probability that the state will be in the medium or low credit rating category. This finding suggests that state policy makers should be cautioned about the negative consequences of cutting spending on infrastructure maintenance and expansion.

Affordability of public pension benefit: a historical and empirical analysis of US state and local government pension contributions

As a result of the two severe stock market declines since 2000, there has been a steady debate about the affordability of state and local public pension benefits. We measured the affordability of pension benefits in terms of governments’ ability to make the required contributions based on existing tax and revenue bases. We conducted a historical analysis of government pension contributions at national and state level over a 20-year period 1992–2011 and found that the real pension burdens have increased over this period. We also found substantial variation in pension burdens among the 50 states. The results of our empirical analysis showed that employee contribution share, investment return, size of the public workforce, and pension benefit level had significant effects on pension burdens. Based on these findings, we proposed several strategies for reducing pension burdens, including increasing employee pension contribution, reducing size of workforce, and improving pension investment performance.

The Two Worlds of Municipal Bonds: ARE Lower-Rated Bonds Punished More by Financial Crisis?

Since the inception of the financial crisis in late 2008, the municipal bond market has undergone tremendous disruption. While some parts of the market are returning to normal, other parts are still under pressure in the aftermath of the financial crisis. By comparing the yields on municipal bonds and comparable corporate bonds, we find that since the crisis, municipal bonds of lower investment grade ratings, those rated A and BBB, are now paying a significantly higher risk premium than their corporate counterparts as seen in light of the traditional yield spread between these two bond markets. This higher risk premium has negative implications for the municipal bond market. Factors for this perception of increased risk in the municipal bond market are discussed and potential solutions are suggested.

Fiscal institutions and the funding of US state and local pension plans

This paper investigates the relationship between the funded ratio of US public pension plans and several fiscal institutions adopted by state governments. The author analysed a large data set from 1997 to 2012, and found that states with stricter balanced budget requirements and debt limits had a lower pension funded ratio, whereas states with tax and spending limits in place had a higher funded ratio. The findings contribute to the current debate on public sector pension reforms in the US and internationally.

State budget periodicity and general expenditure volatility: an empirical analysis

This article aims to examine empirically the relationship between budget periodicity and expenditure volatility in state governments. Using a large panel dataset for fifty states over the years 1960-2012, after controlling for institutional, economic, and political factors, we find general expenditure of biennial states has been significantly less volatile than that of annual states. The finding suggests that a choice between annual and biennial budget period can emerge as a feasible and effective countercyclical strategy to overcome fiscal difficulties in the short run and promote fiscal stability in the long run.