Prior research by the Kellogg School of Management has found $3 trillion in unfunded legacy liabilities from state-sponsored pension plans. However, new research finds additional liabilities from municipalities that magnify the growing public pension crisis. In a new report issued today by the Kellogg School, economists estimate an additional $574 billion in unfunded liabilities from pension plans at the city and county levels.
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| Joshua Rauh |
The paper, “
The Crisis in Local Government Pensions in the United States,” is co-authored by Joshua Rauh of the Kellogg School and Robert Novy-Marx of the University of Rochester. In this latest study, Rauh and Novy-Marx calculate the aggregate unfunded liabilities and forecast the number of years assets will last for 77 defined pension plans sponsored by 50 major U.S. cities and counties. The sample represented all non-state municipal entities with more than $1 billion in pension assets, covering 2.04 million local public employees and retirees. Rauh will present the paper at the Brookings Institution on Oct. 15 in Washington, D.C.
In many cities, these unfunded promises will be a long-standing and substantial burden for municipal revenues. For example, even if all other spending was shut down, the city of Chicago would need to allocate about eight years of dedicated tax revenues to cover pension promises it has already made.
Six major cities have current pension assets that can only pay for promised benefits through 2020: Philadelphia, Boston, Chicago, Cincinnati, Jacksonville and St. Paul. An additional 18 cities and counties, including New York City, Detroit, Cook County in Illinois and Orange County in California would be solvent through 2020 but not past 2025. According to Rauh, it is clear that state and local governments in the U.S. are not far from the point where these pension promises will impact their ability to operate. (
Joshua Rauh)
Maryland & States Grapple With Unfunded Pension Funds
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