• Not Just Detroit’s Problem: American Cities And Counties’ Unfunded Pension Liability Totals $574 Billion

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    EA8134-001Detroit’s bankruptcy is casting a shadow over a long list of cities across the U.S. and giving mayors new urgency in the search for solutions to the greatest challenge to face America’s cities in a generation.

    While no other city is expected to join Detroit in bankruptcy court anytime soon, similar problems brought on by waning industries, crushing debt and surging pension costs plague city halls from Providence, R.I., to California, and in response mayors are proposing big changes to what was long the biggest perk of a government job: a good and reliable pension.

    The total unfunded pension liability for all U.S. cities and counties is a whopping $574 billion, according to a 2010 study by economists at Northwestern University. That’s a formidable burden to cities already struggling with revenue declines, debt and the ongoing cost of providing services.

    Years of financial neglect left Detroit’s finances in ruin, prompting its emergency manager to propose sweeping changes to the way the city doles out benefits by eliminating payment increases and creating a new 401(k)-style retirement system.

    New York Mayor Michael Bloomberg said the lesson from Detroit — burdened by $18 billion in debt, declining revenue and huge deficits — is that cities will ultimately pay a steep price for ignoring long-term challenges including diversification of industry, adequate funding of pension systems, population decline and debt.

    Bloomberg pointed out that New York itself almost went bankrupt in 1975 — a tumultuous time when many cities were struggling to respond to urban decay, poverty, unemployment and the rise of suburbs.

    “We would be foolish to ignore the factors that drove Detroit to bankruptcy,” Bloomberg said in July, shortly after the Motor City took its landmark step. “I believe that the Detroit experience holds lessons for every American city.”

    Some cities, like Detroit, are covered by state laws or constitutions guaranteeing pension benefits in full. In many others, mayors must plead with state lawmakers to overhaul pensions covering local teachers. And when cities operate their own pension systems, they’re typically negotiated through collective bargaining, making them legally difficult to change.

    Marcia Ingram spent 33 years working for Detroit’s health department before retiring nine years ago. She now receives about $2,000 per month. Her pension would be capped under the proposal in Detroit.

    “I feel let down by the city,” said Ingram, 60. “I expected to get an increase every year like I did while I was working. Not a big increase, but it still was something.”

    George Mason University researchers studied financial problems in Chicago, Detroit, Baltimore, Providence, San Bernardino and Pittsburgh and found that all were facing similar problems with pension costs. Frank Shafroth, the report’s principal investigator, said there are no easy solutions.

    “We’re going through a transition,” Shafroth said of America’s cities. “We’ll get there. But getting from here to there is going to be one of the hardest things you can conceive of.”

    ___

    Klepper reported from Providence, R.I. Contributing to this report were Associated Press writers Corey Williams in Detroit, Sara Burnett in Chicago, Peter Jackson in Harrisburg, Pa., Jonathan Lemire in New York, Josh Funk in Omaha, Neb., Steven DuBois in Portland, Ore., and John Raby in Charleston, W.Va.

    Read this entire article on The Huffington Post Detroit

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