Is the public pension crisis overstated?

By BenefitsPro

By Dan Berman

The average amount of money devoted to funding public pension plans equaled 7.9 percent of revenue generated by cities, a survey of 173 municipalities has found.

That figure, calculated by the Center for State and Local Government Excellence at Boston College, was higher than the 5.6 percent number arrived at by the U.S. Census Bureau.

The center’s calculations are based on how much cities should have paid to meet their pension obligations. The Census Bureau used as its basis the amount of money cities actually diverted to pension funds.

Either way, the figures run counter to the popular narrative about public pensions nowadays.

“It’s well known that a few cities like Philadelphia, Chicago and New York have serious pension funding problems,” said Elizabeth Kellar, president and CEO of the center. “But across the country most cities are in good shape.”

The 20 percent of cities with the highest pension burden came in at 12.3 percent needed to pay for pensions; the bottom 20 percent averaged 2.7 percent.

“The glass is more than half full,” Kellar said. “Eighty percent are well-funded. That’s not to minimize the problem, 20 percent have a lot of work to do. (But) we paint these issues with a broad brush. It’s much more nuanced.”

The size of a city did not necessarily correlate to whether its pension burden was high or low. For instance, New York (12.9 percent) and Chicago (17 percent) landed in the top 15 cities with the largest burdens, but so did smaller places like Cincinnati (12.5 percent), Providence, R.I. (12.4 percent), and Charleston, W.Va. (15.7 percent).

On the other end of the spectrum, cities like Milwaukee (1.7 percent), Charlotte, N.C. (2.2 percent), and San Antonio (2.5 percent) joined smaller municipalities like Knoxville, Tenn. (1.9 percent) and Wichita, Kan. (2.5 percent).

Leading the list with the biggest burden was Little Rock, Ark., coming in at 17.6 percent of revenue. Chicago, where Mayor Rahm Emanuel has sounded the alarm about a pension crisis, was second. Rounding out the top five were: Aurora, Ill. (16.4 percent); Charleston; and Reno, Nev. (15.5 percent).

Detroit, where pension problems have been blamed by many for pushing the city into bankruptcy, came in at No. 61. The reason it was not higher, the study said, is that it issued pension obligation bonds in 2005, which increased overall costs, but lowered reported payments.

In total, the study said, pension payments by local governments accounted for 58 percent of all such funding. The percentage varied depending how much of the pension was covered at the state level. For instance, in Vermont, local governments pay nothing into the state fund. On the other hand, municipalities pay 100 percent of their obligations in Hawaii, Maine, Mississippi, Montana, Nevada, New Mexico and Wyoming.

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