If You're A Chicago (Or New York) Taxpayer, Move To D.C.
Thirty cities at the center of the nation’s most populous metropolitan areas faced more than $192 billion in unpaid commitments for pensions and other retiree benefits, primarily health care, as of fiscal 2009. Pew notes that these cities had 74 percent of the money needed to fully fund their pension plans but only 7.4 percent of what was necessary to cover their retiree health care liabilities. Cities typically count on investment earnings from their pension funds to cover two-thirds of benefits. During the Great Recession, though, returns were lower than expected, and unfunded pension liabilities grew in nearly all of the cities. Even cities with well-funded systems struggled to keep up their yearly contributions as local tax revenue plummeted during the recession, and while pension assets have largely returned to pre-recession levels, they still must make up for years of lost growth, as liabilities continue to rise. So pressure for reforms is not expected to lessen. New York and Philadelphia may have the largest unfunded liability per household, but it is Chicago and Pittsburgh that have the lowest funding levels for pensions and the lowest retiree health care funding levels - while Washington D.C. tops the list in both. Benefits down, taxes up.
Overall, the 30 cities, which are the focus of Pew’s American cities project, had 74 percent of the money needed to fully fund their pension plans over the long run...
but only 7.4 percent of what was necessary to cover their retiree health care liabilities as of fiscal 2009, the latest year with data available for all pension plans of all 30 cities...
Unfunded pension and retiree health care obligations pose a significant concern for city budgets. Although these unpaid bills are not due immediately, they limit policymakers’ ability to invest in other priorities because they place a claim on future revenue. Every dollar that goes to plug a hole in a city’s retirement funds is a dollar that cannot be spent on education, public safety, libraries, and other services. The longer unfunded liabilities go unaddressed, the larger the bill facing future city budgets and taxpayers. To shore up retirement funds, local officials may have to cut services, reduce the workforce, or raise taxes. Cities also can pay a price through higher borrowing costs because credit rating agencies incorporate unfunded retirement costs into their analyses.
Localities have employed a variety of strategies to address their growing retirement liabilities, including increasing the retirement age or vesting periods and putting larger amounts of municipal revenue into pension funds. Some cities are pushing to cut cost-of-living increases to retirees or are asking current workers to contribute more money to their own retirement benefits. Most reforms, however, affect only new hires, which does nothing to reduce the sum of unpaid bills.
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