U.S. Cities Face Half a Trillion Dollars in Government Employee Pension Deficits


Tuesday October 12th, 2010   •   Posted by David Theroux at 1:53pm PST   •  

In a new article in the Financial Times, Nicole Bullock reports that a huge pension deficit of more than half a trillion dollars for 50 U.S. cities may produce calls for a massive federal bailout:

“Big US cities could be squeezed by unfunded public pensions as they and counties face a $574 billion funding gap, a study to be released on Tuesday shows.

“The gap at the municipal level would be in addition to $3,000 billion in unfunded liabilities already estimated for state-run pensions, according to research from the Kellogg School of Management at Northwestern University and the University of Rochester.

“‘What is yet to be seen is how this burden will be distributed between state and local governments and whether the federal government will be called upon for bail-outs,’ said Joshua Rauh of the Kellogg School.

“The financial demands of unfunded pension promises come as state and local governments grapple with years of falling tax revenue related to the recession.

“The combination has raised concern that defaults, which are historically rare in the $2,800 billion municipal bond market where local governments obtain money, could now rise. . . .

“Local governments use unique accounting methods that many, such as Mr. Rauh, believe understate obligations. Based on his estimates, which use US Treasuries as the benchmark, each household already owes an average of $14,165 to current and former municipal public employees in the 50 cities and counties studied. . . .

“In New York City, San Francisco and Boston the total is more than $30,000 a household and, in Chicago, it tops $40,000. . . .

For the full article, please click here.




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