Kevin D. Williamson shares with National Review Online readers this morning his thoughts about the potential impact of impending action from the Governmental Accounting Standards Board, which “is getting ready to blow the lid off of the $3 trillion hole” in state and local budgets.

The problem is this: State and local governments have, for the most part, woefully underfunded their employee-pension systems. As a result, they have massive unfunded liabilities for future pension payments — liabilities that total as high as $3 trillion, by some estimates. They can’t forgo writing those pension checks, they don’t have money set aside to cover those pension checks, and they are promising ever more generous pension checks in the future. …

… Those unfunded liabilities are now going on the books officially, and entities that have an incentive to pretend that these liabilities aren’t real liabilities — a group that includes everybody from governments themselves to bond underwriters to big institutional investors — are going to have to move a little bit closer to reality. (Not all the way there … but a little bit closer.)

If unfunded pension liabilities must be considered “on an equal footing” with other obligations, then the credit position of a great many state and local governments will be degraded. If (a) your income is $50,000, (b) your savings are $100,000 (call it $50,000 in the bank and $50,000 in home equity), and (c) your debt is $100,000 (say $75,000 on the mortgage, $20,000 on the car, and $5,000 on the credit cards), then you’re not in irreparable financial shape. But if (a) your income is $50,000, (b) your savings are $100,000, and (c) your debt is $1 million, you’re bankrupt. A lot of local governments will have to seriously revise Column C if GASB changes the rules. And it is likely that doing so will reveal some of them as either insolvent or on the way toward insolvency.