New study: State pensions in dire situation

Five major cities have current pension assets that can only pay for promised benefits through 2020: Boston; Chicago; Cincinnati; Jacksonville, Fla.; and St. Paul. An additional 18 cities and counties, including New York City; Cook County, Ill.; and Orange County, Calif., will be solvent through 2020 but not past 2025.  

Philadelphia has the most immediate cause for concern, as the city can pay existing promises with existing assets through 2015, less than five years from now, the study states. 

The study also states that state and local governments are not far from the point where pension promises will impact governments’ ability to operate. Once the funds are liquidated, promised pension payments will compete with other programs and erode a large portion of many municipal budgets. 

“The fact that there is such a large burden of public employee pensions concentrated in urban metropolitan areas threatens the long-run economic viability of these cites, as residents can potentially move elsewhere to escape the situation,” said professor Rauh, associate professor of finance at the Kellogg School who helped author the study, in prepared remarks. 

Rauh estimates each household already owes an average of about $14,000 to current and former municipal public employees in the 50 cities and counties that were studied. This figure only represents the unfunded portion of benefits that have already been promised — not future promises. In New York City, San Francisco and Boston, the total is more than $30,000 per household. In Chicago, the total is more than $40,000 per household. 

Prior research by Rauh found $3 trillion in unfunded liabilities existed in state-sponsored pensions. His new study shows an additional $574 billion in unfunded liabilities that was not accounted for in the previous study. 

Rauh will present his current work Friday at the Brookings Institution.