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Local Governments: $574 Billion in Unfunded Pension Plans

By Joseph Lawler on 10.12.10 @ 6:23PM

Northwestern University's Kellogg School has published a report finding that local and county governments across the country owe an aggregate $574 billion in unfunded pension plan obligations. One of the authors, Joshua Rauh, had previously estimated that altogether the states had over $3 trillion in unfunded pension liabilities.

The amount of unfunded debt leaves taxpayers in a dangerous situation. According to the study, "six major cities have current pension assets that can only pay for promised benefits through 2020: Philadelphia, Boston, Chicago, Cincinnati, Jacksonville and St. Paul." The amount owed per taxpayer household just for current and former city public employees is staggering: an average of $14,165 in the 50 cities and counties in the study. For Chicago, the average taxpayer household owes $40,000.

The economic outlook is clearly pretty grim. As for the political implications -- well, Rauh gently lays out the scenario in the press release:

"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 bailouts. If these issues are left unresolved, fiscal crises on the state and local levels may translate into significant losses for municipal bondholders," he concluded.

What this boils down to is that lots of cities out there are locked in a game of chicken with their employees. Instead of an oncoming car, it's bankruptcy that's threatening them.

Municipal workers have to hope that if they hold out long enough, their municipal employers will go to the state or federal government for a bailout. In the worst cases, that most likely means the federal government. For example, Illinois' finances are in utter disrepair. Chicago can't count on the state to bail out their pension plans. With this knowledge, public sector workers and their union representatives have every incentive to negotiate strenuously against any reforms that city or state governments would impose on their pension plans.

View all comments (7) | Leave a comment

Eric Cartman| 10.12.10 @ 6:36PM

"Municipal workers have to hope that if they hold out long enough . . . ." With THIS administration? I'll start the clock ticking:

3 . . . 2. . . . 1

Ken (Old Texican)| 10.12.10 @ 7:49PM

Eric...

I must admit I simply "geek out" at these numbers thrown around in bundles of billions of $$$.

The bottom line is that these numbers will never be paid out.
What happens then?

Eric Cartman| 10.13.10 @ 1:07AM

Good question. This is what happens when politicians make promises on our future. Whatever happens, it won't be pretty.

Tom Osterman| 10.13.10 @ 7:16AM

It still amazes me that both the union leadership and the politicians, both sides who instigated this mess, couldn't see where this was going and had to go. Or maybe they did, which is unforgivable. As for federal bailouts, the question that they have to face is why should taxpayers who don't live in Calinois or wherever pay for these states' irresponsibility?

Strap in folks, this wil be as nasty! And support your local Tea Party!

Bob K.| 10.13.10 @ 7:31AM

To put this in perspective just a little bit consider that the State of California has 3,090 retired teachers and administrators who get pensions of more than $100,000.00 a year and 9,111 retired state government workers who receive pensions of over $100,000.00 a year. Multiply 12,000 times $100,000.00 and see what you get! Factor in the many thousands more state employees and teachers who get lower pensions and you will see that the States can't bail out the municipalities within their borders which have pension liabilities.

You can check pensiontsunami.com for verification.

In the state of Pennsylvania the Teachers Pension Fund is underfunded by 20 billion dollars and the State Employee Pension Fund is underfunded by $8 Billion dollars. Harrisburg, the state capitol, has already filed for bankruptcy. Other states are in just as bad a shape or worse. And there isn't enough money in Washington to do it either!

Face it! The governments involved will have to renege on these promised pensions! Willie Brown, former Mayor of San Francisco and Congressman, has predicted that this is what will happen.

Bob K.| 10.13.10 @ 10:16AM

Mr. Lawler,
Why did you put this important information in a blog and not into an article that would stay on this site for a couple of days?

Nobody seems to want to discuss this very serious issue before the election! Is it because both parties are at fault? Because political pensions are also in trouble?

Political pensions are a big issue here in the PA elections. They are discussed often on the local talk shows.

Pete| 10.13.10 @ 11:39AM

Public "service" indeed. The ruling class can steal taxpayer money to fulfill the promises they have made to their own kind...that is not a sustainable model.