(Washington, DC) - Good afternoon. Thank you very much for inviting me to speak before your annual legislative conference.

There’s an old saying that when a conservative sees someone drowning 50 feet from shore, he’ll throw him a 25-foot rope and tell him to swim to it. And when a liberal sees someone drowning 50 feet from shore, he’ll throw him a 75-foot rope and then drop his end to go run off and perform another good deed.

Me? I learned about lifesaving in the Boy Scouts.  I know that there are many ways to rescue someone from the water.  Sometimes it's throwing a life preserver, sometimes it mean reaching out with a pole, sometimes, you have to get in the water yourself. You have to do what will work.

I don’t have to tell any of you what you're up against. An underwater stock market, requirements to mark certain assets to market when, in reality, no market for the assets exists, and less taxable revenue due to a rising tide in unemployment. If there ever was such a thing as a low-risk investment with a reliable yield, it surely can't be found today. And, even if there were, how many people in this room are confident enough in our market's transparency requirements and financial reporting standards to believe they had actually stumbled across it? How many of you trust our credit rating agencies to buy a triple-A rated security today? Or a triple-B? To the degree that your state’s finances – or, more worryingly, its solvency – are dependent on expected returns on investments, you know that the appearance of your head and shoulders bobbing up and down peacefully, is belied by the reality that underneath the surface, you're swimming fiercely just to stay afloat.

And we all know that there isn't going to be a miraculous, spontaneous economic recovery. The reality is that many states and local governments are soon going to be faced with the same type of fiscal crisis that Governor Schwarzenegger is facing in California: You can't borrow enough, you can't tax enough, and you can't cut spending enough.

Here’s what I don’t have to offer. I don't have a boat that can rescue everyone. I can 't make the waves of lost confidence that have rocked the markets subside. And I can't make the tide of losses, layoffs and deleveraging ebb before its time. But I think I do have a life preserver that might not help only you survive, but help a lot of others as well. But we're going to have to work together, both the federal, and the state and local governments, to make it work.

I'd like to focus on just one of your most pressing and unavoidable obligations, the administration and management of public pension funds. In my view, the aggregated magnitude of public pension funds and the increasing difficulty states and local governments will have in meeting their obligations, creates both an extraordinary risk of exacerbating our already troubled economy, and an unmatched opportunity to not only ensure that states and local governments can meet their solemn obligations, but also, in doing so, perhaps to help in stemming the financial crisis.

Historically, approximately 65% of the capital in public pension funds has come from careful, long-term investments in relatively safe, proven assets. The volatility and broad economic downturn of the last twelve to eighteen months have been as disastrous for public pension funds as for any other deliberate and prudent investor. Many state and municipal funds have lost as much as a quarter or more of their value, and there is no indication that the market conditions are going to change anytime soon. In the short-term, at least, the traditional method of financing public pension obligations is probably unsustainable. When 20-year U.S. Treasury bonds can be sold for zero yield, clearly conditions for achieving reliable and safe returns on investment require a very different kind of strategy.

Approximately 25 million Americans either contribute to, or are dependent on, a public pension fund. And, while they may be worried about the value of their home or their investment portfolio during this economic crisis, they all believe--and must continue to believe--that they needn’t worry that their pension will disappear. By law, and as a matter of solemn trust, a government entity with liability for a public pension fund must meet its obligations to its pension holders. You know this fact better than anyone. But you also know what it will mean to have to raise taxes, cut spending, or to discover that doing both may not be enough to enable you to meet your pension fund obligations.   

And while you in the States are deciding how many state programs must have be cut, how many state employees must be furloughed or fired, and how many urgent operations and maintenance programs can be skipped for another year, here in Washington we are still trying to figure out how to break loose the seized-up credit pump in our banking sector. Every day brings fresh reports from both major financial institutions and from the Treasury Department, that the original $700 billion bailout may not be enough to shore up our financial system and restore the flow of credit. While our credit markets have improved, they remain clogged. My own view is that both commercial and consumer lending arteries will likely require additional federal action to free up capital for business loans, mortgages, credit cards, student loans, and auto loans – put simply, the kinds of financing that make our economy work and are essential to our economic recovery.

And, while we in Congress may enjoy greater freedom with the federal budget than do you in the States, my view is that we still cannot afford, either financially or politically, to provide additional tens or hundreds of billions of dollars worth of taxpayer exposure to address the troubled balance sheets of our financial institutions. And so, as a nation we find ourselves confronting two concurrent problems: The unavoidable obligations that state and local governments have to their public pension funds and the federal government's need for resources to get the financial sector’s credit pump back into action.

Today, I am proposing marriage.

You have capital that needs a safe-harbor and some return on investment. We need capital to prime the nation's financial pump and have the ability to back that capital with the full-faith and credit of the United States of America. I think your need and our need can partner up for the common good. The marriage contract reads: “We, the federal government, guarantee the principal plus interest to you, the public pension funds, for the capital that you will invest in an entity that could potentially accept and inject hundreds of billions of dollars into TARP-eligible financial institutions through preferred shares.” For your contribution to our economic recovery, participating public pension funds would receive a guarantee of up to 8% of their investment; enough of a return to enable funds to meet their hurdle rates. And it will come as no surprise that I have drafted legislation, H.R. 710, the Public Retiree’s Investment Act to make it happen.

In my view, this proposal is truly a win-win for both the federal government and for the local and state governments that administer public pension funds. From the federal government’s point of view, the Public Retiree’s Investment Act could inject hundreds of billions of dollars into critical financial institutions without significant taxpayer expense. For public pension funds – where else can you put your money right now and get an 8% return that is guaranteed? You won’t find a better suitor. Don’t die an old maid.

I believe quick passage of the Public Retiree’s Investment Act is a good idea on its own terms. But looking ahead only a few quarters, I believe it might also be absolutely essential to avert a tidal wave of public pension shortfalls that local and state governments would have to fund directly, or fail to meet altogether. According to a Bloomberg report published just last week, many pension funds are in such dire straits that, unless action is taken soon, a $1 trillion bailout could be on the horizon. This legislation would preempt the need for such a massive bailout.

The pension experts with whom I have consulted estimate that, collectively, public pension funds currently hold approximately $250 billion in liquid assets. If invested in the TARP-eligible financial institutions, with a federal guarantee, these funds could make an enormous contribution to our country’s economic recovery while simultaneously ensuring that your commitment to millions of America’s retired police officers, firefighters, teachers, and government employees will be met, on time, and in full, and as promised.

This plan is the life-preserver of which I spoke. It will not balance your budgets. It will not restore your state's economy. But it is a life line long enough to reach you and, insofar as your pension obligations might be the key to your state's solvency, I believe it will keep you afloat. As I said, it will require cooperation from all levels of American government. For this to happen, your active support is needed. Right now there is fear all around, and a succession of Congressional efforts has brought only increasing doubt that government action can succeed. In this environment, your expertise and credibility, your standing as fiduciary officers, are essential. Say yes quickly. Bless the marriage. Endorse H.R. 710 and get your states’ congressmen to cosponsor the bill.

There are two more things about life-saving I learned in the Boy Scouts. One, when someone is drowning, you can't wait. And two, you can't save anyone by doing nothing. 

Thank you once again for allowing me to speak to you this afternoon. I am happy to answer your questions.

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