Over the past year, government spending, deficit levels, and record amounts of debt have been thrust into the national spotlight (to get caught up to speed on the issue, check out the January 2011 issue of IWF’s policy newsletter Policy Focus). And as we’ve pointed out here at IWF before, the biggest challenge in dealing with those problems in the long term is tackling entitlement programs.

Unfortunately, from a fiscal standpoint, state governments aren’t doing so hot either. While it’s not as prominent an issue as the booming national debt, there does seem to be a growing attention on the state budget outlook. The issue even got some media play on the Colbert Report last week in this segment.

Much like entitlement programs like Medicaid are at the heart of long-term budget problems, public pension programs are key to getting state budgets back under control. It’s not small problem either — nationally state and local pension funds are underfunded by an estimated $3 trillion.

So, how can we get state budgets back on track? Dan Rothschild offers eleven state budget reform ideas in this proposal and saves probably the most important idea for last, reforming public pensions:

Nationally, state and local pensions are underfunded by as much as $3 trillion-a figure some three times as high as total explicit state debt. Almost all state and local governments provide defined benefit plans, while few such plans exist in the private sector.

States should reform their pension systems, enrolling all nonvested workers in defined contribution plans. This change would not only clarify the liabilities of retirement plans, but it would also give state workers more freedom to change jobs and move between the public and private sectors since they can roll over contributions between jobs.

In addition, states with heavily unfunded pension liabilities should consider increasing employee contributions, reducing future benefit accumulation, reducing cost of living adjustments (COLAs), and raising retirement ages. Failure to do so puts off the day of reckoning for underfunded plans and ultimately makes fixing the problem more costly.

Both on the federal and state level, we need frank talk and fresh ideas about entitlement programs. Everyone seems to agree that we are on an unsustainable path, but few have been willing to put their neck on the line to change that path. So here’s hoping that tonight, whether it’s in President Obama’s speech or Paul Ryan’s reply that we get a commitment to getting the federal government’s budget in order. It’s a worthy goal in its own right and it would have the added bonus of setting a good example for state governments, who have a lot of work to do themselves.