Since the once-great city of Detroit filed for bankruptcy, Americans everywhere are in a panic. Is my city next? Is my state facing financial disaster? From Wisconsin's controversial Gov. Scott Walker to New Jersey's Chris Christie, politicians all over seem to be telling us the answer is yes. The fiscal end is nigh, these leaders say, if America doesn't act soon to slay one of the last great budgetary dragons held over from the entitlement age: our allegedly outmoded, unsustainably expensive system of state and municipal pensions.

In the new fable, state and municipal workers are presented as the welfare queens of our age, historical anachronisms living fat and happy in the competition-free panacea of public service, and shamelessly living off the tax dollars generated entirely by the innovation of America's true workforce – its go-getting private-sector employees, who long ago stopped expecting their bosses to give them real health and retirement plans.

To them, the old-fashioned defined-benefit pension plan, the one that guaranteed a unionized state worker extensive health benefits and a sizable monthly retirement check until his (invariably too-distant) death, is the glaring budgetary inefficiency of our age, the first place we must turn to make the fiscal cuts if we don't want to become the next Detroit.

Pension reform advocates have cited these tales to make their legislative pitches. In state after state, politically active billionaires such as former Enron executive John Arnold, finance-sector think tanks like the Manhattan Institute, and foundations viewed as centrist, such as the Pew Center on the States, have all pushed to cut public workers' guaranteed retirement income, transform pensions into 401(k)-style individual accounts, and turn over the management of pension money to, well, people like the hedge-fund CEOs on the board of the Manhattan Institute. Such reforms are then portrayed as benevolent and transparent initiatives to protect taxpayers and balance budgets.

To a lot of Americans, these purported pension solutions seem logical because the underlying stories about public pensions are compelling. Most Americans know a retired cop or teacher collecting a pension check. Few know a hedge fund CEO.

But are those stories true? It is a particularly important question for California, as Arnold begins financing a ballot initiative campaign to radically alter the state's pension system.

When we evaluated the ubiquitous pension narratives (Taibbi for a lengthy feature in Rolling Stone and Sirota for a report for a progressive think tank, the Institute for America's Future) we both found the same three problems.

One was that the legend of the lazy, budget-devouring public-sector employee as the cause of America's fiscal crises has in many cases been carefully manufactured by Wall-Street-funded organizations. Their goal is to pretend that modest retirement benefits are the cause of pension shortfalls. They promote this story even though data show that stock market declines from fraud in the financial services industry were most responsible for those shortfalls.

The second problem is that the pension initiatives put forward by these reformers and the conservative politicians they back often propose moving America's public pension money into labyrinthine and extremely expensive "alternative investment" programs. This is done in the name of saving taxpayer money, even though these "alternative investments" involve fees paid to billionaire money managers that are often nearly as high as the cuts to public worker benefits. In many cases, that means little real savings for taxpayers and less income for retirees – but a huge payout to Wall Street.

The third and most disturbing thing we both found is that many states have gone to extraordinary lengths to hide the details of these pension reform plans. That means public workers are kept in the dark about where their money is being invested and about how much of their dwindling nest egg is being blown on fees for high-risk Manhattan hedge funds and private equity firms.

This secrecy is particularly alarming.

In more than a dozen states, legislators have enacted exemptions for hedge funds and other alternative investments to laws such as the Freedom of Information Act. Other states simply fail the transparency test. Rhode Island illustrates what that kind of thing means in practice. There, state Treasurer Gina Raimondo cited the need to protect Wall Street's proprietary information as a justification to hide the cost estimates of the new pension system she championed in 2012. Only after that system was ratified by the state Legislature did former Securities and Exchange Commission lawyer Ted Siedle estimate that the reforms will take the roughly $2.3 billion cut to workers' cost-of-living adjustments over 20 years and use it to pay roughly $2.1 billion in new hedge-fund fees. Raimondo later relented and disclosed at least $70 million in fees for next year alone.

To justify retirement benefit cuts, reformers point to a 30-year, $1.38 trillion gap in state pension finances as supposed proof that states are broke. However, that annual $46 billion shortfall is small in comparison to the at least $80 billion that the New York Times estimates that states and cities spend each year on subsidies for corporations. But because these subsidies are often hidden, the Times notes that it remains impossible to "know the value of all (the) awards" or "how many jobs are created" from them.

Thanks to this lack of transparency, the result is preposterous trade-offs such as the following: Rhode Island giving an infamous $75 million loan guarantee to Red Sox pitcherCurt Schilling's doomed video-game company, while simultaneously pleading poverty and cutting retirement benefits for police and firefighters in the name of budget austerity.

Obviously, public pension shortfalls need to be addressed. But without transparency, pensioners cannot evaluate their retirement income prospects, journalists cannot accurately report on state budgets, and lawmakers cannot make informed decisions about pension legislation. That serves no one, except the wealthy special interests now profiting from an ongoing information vacuum.