WASHINGTON, Jan. 16, 2013 /PRNewswire-USNewswire/ -- Sixty-one key cities across America have emerged from the Great Recession with a gap of more than $217 billion between what they had promised their workers in pensions and retiree health care and what they had saved to pay that bill, according to a report released today by The Pew Charitable Trusts. The new report includes the most populous city in each state, plus all others with populations over 500,000.
For pensions, these cities had a shortfall of $99 billion in fiscal year 2009, the most recent year with complete data. The rest of the shortfall—$118 billion—was for retiree health care and other benefits. Because some cities are slow to report their results, a complete set of data was available only through fiscal year 2009. Over the long term, cities and states strengthen their fiscal position if they have policies that aim to fully fund their pension and retiree health care obligations.
Between 2007 and 2009, 16 cities consistently did well in funding their pensions, while nine cities underperformed. Wide disparities exist in how well prepared cities are to fulfill their pension obligations to employees. Milwaukee, Wisconsin had a surplus at the end of fiscal year 2009, with enough money to cover 113 percent of their liabilities. At the other end of the spectrum, pension systems in four cities—Charleston, West Virginia; Omaha, Nebraska; Portland, Oregon; and Providence, Rhode Island—were the most poorly funded, with Charleston trailing all the cities at 24 percent.
"Cities like Charlotte, Milwaukee, and San Francisco show that pension obligations can be met in a sustainable and affordable way that benefits employees and taxpayers," said David Draine, senior researcher at the Pew Center on the States. "On the other hand, rising costs for poorly funded pension systems can crowd out funding for other city priorities like roads and education, lead to tax increases, or threaten retirement benefits."
While investment losses during the Great Recession depleted cities' pension funds nearly across the board, the new Pew report found another factor made the difference between the best- and worst-funded pension systems.
"Having studied 61 cities and the 50 states, the better-funded plans all share one characteristic; they have the discipline to pay their annual pension bills," Draine said.
Nearly six out of 10 cities made at least 90 percent of their annual payments in all three years studied. Among those jurisdictions, pension funds weathered the recession better and their funding levels dropped only half as much as cities with poor funding habits.
How cities interact with their state can also have an influence on their pension system. For example, in Wilmington, Delaware, the six city-managed pension plans were on average 69 percent funded in 2010. In contrast, the pension fund managed by the state, which includes Wilmington police officers and firefighters hired since 1993, was 96 percent funded. Wilmington has since decided to enroll new general employees in the state-run plan.
However, in Louisville, Kentucky, most of its employees are enrolled in two state-run retirement plans. While the city consistently paid 100 percent or more of its required contribution in fiscal years 2007-2010, its pension savings kept losing ground because the state required cost of living adjustments without ensuring they would be funded. That mandate substantially contributed to the unfunded liability facing the city.
"When city leaders lack the authority to fix their underfunded pension systems, it can further strain budgets," said Draine. "Both city and state policymakers will need to work together to put these poorly funded plans back on a firm footing."
For pensions, the 16 best performing cities included in the Pew study are: Albuquerque, New Mexico; Baltimore, Maryland; Charlotte, North Carolina; Dallas, Texas; Denver, Colorado; Des Moines, Iowa; Los Angeles, California; Milwaukee, Wisconsin; Salt Lake City, Utah; San Antonio, Texas; San Francisco, California; Seattle, Washington; Sioux Falls, South Dakota; Virginia Beach, Virginia; Washington, D.C.; Wichita, Kansas.
The nine worst performing cities included in the Pew study are: Charleston, West Virginia; Chicago, Illinois; Fargo, North Dakota; Jackson, Mississippi; Little Rock, Arkansas; New Orleans, Louisiana; Omaha, Nebraska; Philadelphia, Pennsylvania; Portland, Oregon.
Besides pensions, many localities also have promised health care, life insurance, and other non-pension benefits to their current and future retirees, but few have started saving to cover these long-term costs. As of 2009, only Los Angeles, California and Denver, Colorado had even half of the money needed to fulfill their promises to employees. Thirty-three cities had set aside nothing to pay for this bill coming due.
Find the full report at: http://www.pewstates.org/research/reports/a-widening-gap-in-cities-85899442341
About the Methodology:
Researchers examined the retirement plans listed in each city's Comprehensive Annual Financial Report (CAFR). Principally from these documents, Pew collected the actuarial value of assets and liabilities for each defined benefit pension plan and other post-employment benefit plan that a city participated in for fiscal years 2007, 2008, and 2009. Because some cities are slow to report their results, a complete set of data was available only through fiscal year 2009. The report also includes 2010 data for 40 cities.
The Pew Charitable Trusts is a nonprofit organization that applies a rigorous, analytical approach to improve public policy, inform the public, and stimulate civic life.
SOURCE The Pew Charitable Trusts