The Spectacle Blog

Local Governments: $574 Billion in Unfunded Pension Plans

By 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. 

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