Newsmax has a long and informative piece about the looming public pension crisis facing cities across the United States. One analyst believes it will get to the point where it pits neighbor against neighbor. Oddly, many taxpayers are against any proposals to do anything about it. In Cincinnati, Ohio they just voted down an initiative that would have transformed the under-funded pension system into a 401K style plan, which seems pretty reasonable to me. Then again, the unions have a lot of cash to spend to change people’s minds.
It failed 78 percent to 22 percent, an example of the opposition that cities face when trying to tackle the politically sensitive issue of funding retirees’ benefits.
More and more cities, counties, and even some states will face the harsh reality of having to fix their pension systems or deal with a Detroit-style bankruptcy.
“This is happening in too many cities and towns across America, where social services, because they can be cut, are cut. Because pensions and bonds constitutionally cannot be cut, they’re the protected class,” Wall Street financial analyst Meredith Whitney told CNBC.
“I think you’re going to see a real issue of neighbor against neighbor on these very issues,” said Whitney, who recently co-founded Kenbelle Capital LP, a New York hedge fund.
Whitney argues in her recently released book, “Fate of the States: The New Geography of American Prosperity,” that cities and states which delay addressing the crisis will witness a continued decline in growth.
A study by the Pew Center earlier this year looked at 61 cities — those with populations over 500,000 plus the largest city in each state — and found a total gap of $217 billion between pension and retiree healthcare obligations and the funding saved to pay those costs.
According to Pew, those cities had a total pension liability of $385 billion, with 74 percent funded, leaving a $99 billion shortfall.
The situation regarding retiree healthcare benefits in those cities is far worse, with a total of $126.2 billion of liabilities that are only 6 percent funded.
But here’s the real rub: experts are warning that many pension systems, those claiming they are well funded and those who say they aren’t, have all been using rosy projections about future investment returns.
Read the whole thing, and share it with your friends. I guess the first step in solving a problem is acknowledging that there is a problem. In this case, it’s an especially dire problem. “Cutting services” might not sound like a big deal until you find out that it means cuts to police patrols, garbage pickup, and the other things that add to our quality of life.
H/T Expose the Media
Update: Mish Shedlock has the news on the cities of Chicago, IL and Scranton, PA. Things are looking bleak. Scranton is on the verge of bankruptcy. Then Yahoo reported that Desert Hot Springs, CA is considering bankruptcy due to soaring pension costs. What city is next? It could be any one of them.