The pension costs burden for America’s largest cities is less than the perception presented in media reports, a new study indicates.
The research report released this month by the Center for Retirement Research at Boston College shows the overall pension expenses borne by residents in U.S. cities to be 7.9% of revenue. Of the 173 cities examined, the Center for Retirement Research findings show taxpayer average pension costs range from 2.7% on low end to 12.3 percent for the nation’s most expensive cities.
“It’s much lower than people would have expected because of the rhetoric out there,” said Jean-Pierre Aubry, assistant director of state and local research at the Center for Retirement Research who helped author the study. “In some places these are serious issues ..but on the whole things are not terrible.”
The report found that Little Rock, Ark., has the highest pension costs as a percentage of revenue at 17.6%. Major U.S. cities that came in with the highest pension costs included Chicago (17%), New York (12.9%) and Philadelphia (11.4%). Despite filing for bankruptcy protection this past summer, Detroit was ranked 61st for pension expenses at 7.7% due primarily to its 2005 move issuing Pension Obligation Bonds, which increased borrowing but at the same time reduced employee benefit costs.
Cities with lowest pension costs include Vancouver, Wash. (1%), Lincoln, Neb. (1.1%), Portland, Maine (1.6%), Cheyenne, Wyo. (1.7%) and Milwaukee (1.7%). Aubry said pension issues for cities often are based on the economic health of the state they are located in and other issues such as lack of revenue often plays more of a role in whether there are distressed conditions.
Aubry explained that the Center for Retirement Research’s survey aimed to explore the largest cities in each state as well as governments that had both a city-run pension plan and one run by the state. While the cities studied includes only 3.1 percent of the 24,000 localities identified in the 2012 Census, Aubry said it accounts for nearly 40 percent of reported revenue.
“Pension costs are more relative toward the economic vibrancy of a state,” he said. “The [pension] crisis is really only in a handful of places.”
The November report released by the Center for Retirement Research is part of a series the organization is planning related to pension costs at localities. Other studies in the works include what roles pensions play in fiscal troubles for local governments and the impact on municipalities that take part in state plans who are now required under new Governmental Accounting Standards Board reporting standards to disclose a portion of their state assets and liability.
