Unfunded Liabilities

Unfunded Liabilities - Defined

The term unfunded liabilities, or unfunded liability is mostly to be found in government financial reports. It generally refers to the difference between how much the government owes for future employee benefits compared with how much it should have already saved – but hasn’t. That difference is referred to as an unfunded liability.

As a matter of public policy, unfunded liabilities are critically important- as they hold the potential for one generation to do all the spending, while forcing the following generation(s) to pick up the tab. Given the popularity of “free government supplied benefits and services”, there very few people are aware of this issue, and fewer yet, understand its consequences exists a huge political temptation to offer popular new programs financed on the backs of future generations. It is this type of fiscal irresponsibility that has created the majority of today’s unfunded liabilities.

Worse yet, because our standards for public reporting of unfunded liabilities remain so obscure, very few people are aware of this issue, and fewer yet, understand its consequences for themselves, their families and their communities.

Unfunded Liabilities - How They Were Created

An unfunded liability is created any time a program is established to provide some future benefit to a citizen or employee - but no matching program is established to tax and save the money necessary to pay for this future benefit.

Under these conditions, when a new or increased government entitlement or public employee benefit is conferred, such benefits end up being paid by the ensuing (future) generation of taxpayers – taxpayers who received no direct benefit or services from the retiring employee being.

This type of government accounting, which relies heavily on deferred payments and the use of unfunded liabilities, is a relatively new phenomenon in the history of the United States and can generally be traced back to the era when social security was first established as a safety net for those less well off and unable to fend for themselves.

it is one generation doing the spending, and another doing the paying.

What is most remarkable is that a program, originally intended to serve the special circumstances of an unfortunate few, has been allowed to morph into a commonly- accepted “standard of practice” in the realm of government accounting. In effect, it’s not much different than the “credit card mentality” (buy now, pay later) which has driven many a consumer into personal bankruptcy. The main difference being, in this case, it is one generation doing the spending, and another doing the paying.

"How have we arrived at this place and time, with such a major disconnect between our personal values, in which we each take ownership of our personal debts, and the values being reflected by the conduct of our government - which appears increasingly more willing to push off the debts of one generation onto the shoulders of another?" – that is the question before us.

Sustainable communities, like nations, do not just happen. One aim of Informed Majority is to make the connection between community-level financial conditions and the long term health of their communities. Successful communities are the product of active civic engagement and participation of their residents. We hope you will spend the time to explore our site. We welcome your questions. If you would like to learn more or become more involved, please visit our PROJECT UFO to learn more.