come from the states, may be underestimated. A 2011 analysis by the Joint Economic Committee shows that lower portfolio return assumptions on pension assets sharply increase the magnitude of underfunded pensions (see chart, right). As reported unfunded state pension and OPEB liabilities State and local unfunded pension liabilities under Billions, USD different portfollo return assumptions, Trillions, USO 1,400 3.0 1,200 25 1,000 : 20) 800 OPEB 1.4 600 400 = 200 Pension 04 o 0.0 2001 2003 2005 2007 200g a Return 6% Return 5% Return 4% Return Source: State Comprehensive An nual Financial Reports. Source: CBO, Center forRetirement Research. However, there’s more of an effort at the state/local level to address this issue than at the Federal level. More than 40 states lowered pension benefit liabilities over the last 3 years according to the National Conference of State Legislatures. Measures taken include raising employee contributions (while lowering employer payments), raising minimum retirement ages, cutting post-employment healthcare benefits and in some cases, switching to defined contribution from defined benefit plans. The good news, to paraphrase Mark Twain, is that reports of municipal bonds’ demise have been greatly exaggerated. From 1970 through to the end of 2011, municipal bonds rated by Moody’s experienced a grand total of 71 defaults among 17,700 issuers (11 of which occurred during 2010 and 2011). General obligation bonds accounted for 5 defaults; 29 were related to housing; 22 for hospitals and healthcare; 3-4 each for education and infrastructure. Utilities and cities registered 2 each, while counties, special districts, and water & sewer and experienced | each. The average recovery for defaulted munis was 65%, compared to 49% on corporate senior unsecured bonds. Last comment on municipals: while /oca/ tax collections are weak due to the collapse in home prices, state tax collections have been increasing for 7 quarters in a row. State and local tax re