It turns out that many city public pension plans are just as underfunded as various state plans are. For instance, Chicago has only about $22 billion in pension assets to pay for $66 billion in pension promises to its city workers, while New York City has $93 billion available to pay $215 billion in city pension promises, and Boston has only $3.5 billion available to pay $11 billion in promises. That means that every household in Chicago has a liability of about $42,000 just to pay pensions to city workers, while each household in New York City owes $39,000, and each in Boston owes about $31,000. These are existing pension promises and would remain the same even if that city’s pension plans were frozen.
A new report by Robert Novy-Marx of the University of Rochester and Jonathan Rauh of Northwestern University—the same academics who did an earlier report on underfunded state pension plans—says that major pension plans for city workers have a combined estimated underfunding of $574 billion. This is on top of the $1.8 trillion to $3.4 trillion underfunding for state public pensions.
The report covers 77 major public employee pension plans located in 50 major cities and counties, accounting for about two-thirds of workers covered by city and county pension plans. Using more realistic estimations of the underfunding of each plan than is used by most public pensions, the report paints a dire picture of the burden that taxpayers face unless they can find a legal way to reduce those costs.
However, not all public pension plans are underfunded, and they are certainly not equally underfunded. Certain cities have done a better job of controlling their pension promises or funding them than others.
Chicago takes first prize in underfunded city pensions, and this in a state that already has such seriously underfunded state employee pension plans that each household in the city already owes $29,000 just for the state plans. The authors estimate that the combined underfunding of the two jurisdictions equals about $71,000 per household.
However, other city pension funds are so underfunded that they could run out of money in the next few years regardless of the amount owed per household. In order, the first 10 to run out of money unless they do some major reforms quickly are as follows:
1. Philadelphia: $9 billion underfunding ($16,700 per household) in 2015
2. Chicago: $45 billion underfunding ($42,000 per household) in 2019
3. Boston: $7.5 billion underfunding ($31,000 per household) in 2019
4. Cincinnati: $4 billion underfunding ($15,700 per household) in 2020
5. St. Paul, MN: $1.4 billion underfunding ($13,700 per household) in 2020
6. Jacksonville, FL: $4 billion underfunding ($13,000 per household) in 2020
7. New York City: $122 billion underfunding ($38,900 per household in 2021
8. Baltimore: $3.7 billion underfunding ($15,400 per household) in 2022
9. Detroit: $6.4 billion underfunding ($18,600 per household) in 2023
10. Fort Worth, TX: $2 billion underfunding ($7,200 per household) in 2023
As this list indicates, the city public pensions plans must be fixed quickly, or the situation will get even worse. Unfortunately, most of these cities are doing nothing major at this point. For instance, Chicago has been given a funding holiday by the state legislature, a move that is almost certain to make the problem grow very rapidly.
Cities and counties can receive aid from the states or declare bankruptcy. However, they must solve their own problems and not turn to the federal government for a bailout. Such a move would only guarantee that many cities would go back to their bad habits, convinced that a federal handout awaits them once they get into trouble again.