Many U.S. cities are still recovering from the effects of the Great Recession but they remain burdened by massive unfunded liabilities, according to a new five-year survey of 30 cities done by the Pew Charitable Trusts. The 30 cities and their metro areas polled by Pew account for almost 49% of America’s gross national product.
The study found that the cities face more than $225 billion in unfunded liabilities as of Fiscal 2010, consisting of $121 billion of unfunded pension liabilities and $104 billion of OPEB liabilities. Moreover, Pew said that less than half of the cities surveyed were making their recommended annual contributions to fund the plans.
In terms of best practices, “cities should pay these bills, year after year,” Kil Huh, Pew’s director of State and Local Fiscal Health, said in a webinar. “It’s important (so as to let government finance officials) manage the ups and down of the business cycle and to manage these payments over the long term.”
He added that it was important for cities not to “over-promise with money they don’t have,” citing the example of Detroit, where he said officials borrowed to pay for pension obligations and promised benefits that they could not pay over the long term.
“Detroit relied too much on things outside its control,” Huh said, citing Motown’s loss of population and manufacturing base. “And things got out of hand.”
He stressed, however, that Detroit remains a special case.
“Municipal bankruptcy is rare. Of about 55,000 active municipal bond issuers, only about 10 a year file (for Chapter 9). And most of those have been smaller issuers,” Huh said.
A Look at 30 Cities:
The study, which spanned 2007 to 2011, also found that most cities began to feel the full impact of the recession only in 2010, reflecting the delayed effect of the housing market downturn and the subsequent loss in property tax revenue.
By 2011, Pew found that over two-thirds of the cities had not recovered to their pre-recession revenue peak.
Most cities first tapped their reserve funds at the height of the financial crises, Pew said, but have since started slowly replenishing them as their economies recover.
After tapping these funds, cities also cut costs to deal with the downturn and all 30 cities surveyed downsized their public sector workforce. From 2008 to 2011, more than 40,000 public sector jobs were eliminated at the city level, Pew found.
And in a change from previous practice even core public safety jobs, such as police and fire, were not sacred and immune from job cuts.
Huh said it was a concern for cities to strike the correct balance between prudent financial stewardship and keeping the municipality a desirable place to live for current and future residents.
Huh said it was the aim of the survey to help provide elected officials and public finance officers “with better information to facilitate better decisions.”
Full Report:
