This all boils down to who gets to pick taxpayers' pockets first, public pensioners or municipal bond investors? More people are waking up to the hard reality that when it comes to state and local government, somebody has to lose money over the next few decades. The National Association of Bond Lawyers is worried enough about it to issue "Considerations" for advising clients who think they're getting safe investments.

"Considerations in Preparing Disclosure in Official Statements Regarding an Issuer's Pension Funding Obligations (Public Defined Benefit Pension Plans)" states "governmental pension plans may have problems that may not be apparent to investors and analysts from either the basic information about a pension plan or system or even from the actuarial valuation."

State and local politicians have been secretly looting public pension funds for decades. Now the bills are coming due, and they don't have enough money to pay. In most states bond investors are in line behind pensioners when it comes to taking taxpayer money.

The warning bell finally got loud enough almost two years ago when the Securities and Exchange Commission gave a wink and a nod to New Jersey for intentionally and repeatedly lying to bond buyers about its public pension fund catastrophe.

SEC determined the state was "negligent" and violated the Securities Act.

"Specifically, the State made material misrepresentations and omissions ... regarding the State's under funding ...." And pension debts "... represent a significant and growing obligation .... The State's misrepresentations and omissions were material in that they failed, over the course of an almost six-year period, to provide investors with adequate information regarding the State's funding ... as well as the financial condition of the pension plans."

New Jersey is not alone. According to a recent study by the Mossavar-Rahmani Center at Harvard's Kennedy School, state and local government finances are "spiraling out of control ... Nearly all states are facing a major financial challenge when it comes to funding their pension promises."

The authors warn of a "looming showdown between taxpayers, elected state officials and many public sector unions." What about bond investors?

Another recent study by the Federal Reserve Bank of Cleveland cites unfunded pensions as a major cause of state and local government stress and says bonds probably are safe, but, "A sudden, unanticipated municipal bond default could cause a sharp decline in investor confidence, potentially leading to a rapid selloff. If investors thought that defaults among multiple issuers were highly correlated, growing uncertainty could fuel a downward spiral of selling and investor losses."

If that happens, investors will be asking their bond lawyers some tough questions.

So NABL put a task force on finding ways for lawyers to cut through government lies about "the extent to which existing or future legal, political or economic factors will likely materially constrain an issuer's ability to meet its overall general operating costs (and thereby materially affect an issuer's ability to meet its pension funding obligations) ...."

The report includes specific ways "... to determine whether the pension plan has accumulated a sufficient amount of assets such that, together with future annual payments and assumed earnings on those assets, there will be funds sufficient to pay that future stream of ben­efit payments."

And it warns, "... information in the notes to the financial statements may not be sufficient to provide a complete understanding of both the current financial status of the plan (assets) and the actuarial determined liabilities, which together represent the funded status of the plan....

"Where concerns arise about the funding and budgeting aspects of an issuer meeting its pension obligations or concerns with the fund­ing and policies of a pension plan ... further disclosure may be warranted. Appen­dix D provides for examples of additional information that may be required in order to fully explain to investors how the issuer's pension funding obligations factor into the whole credit story of the bonds."

Not only bond investors should use Appendix D to find how bad a pension plan is. Public workers and taxpayers should, too.

Because no doubt about it, somebody has to lose. There's not enough money to go around.

In the New Jersey case SEC told officials to stop lying but punished no one. As of now, unless taxpayers rebel, they have to pay billions of dollars for those lies to bondholders and public employees.

The liars and cheats who pocketed millions of dollars doing the deals are off the hook, for now.

To one degree or another, the same perfectly legal fiscal crimes are happening all over the country.

NABL's "considerations" may slow the countdown on this ticking time bomb a little, but it's not enough to stop ultimate detonation when taxpayers get the bill.

Only immediate radical pension reform can prevent that.

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