Big US cities could be squeezed by unfunded public pensions as they and counties face a $574 billion funding gap, a study to be released on Tuesday shows.
The gap at the municipal level would be in addition to $3,000 billion in unfunded liabilities already estimated for state-run pensions, according to research from the Kellogg School of Management at Northwestern University and the University of Rochester.
“What is yet to be seen is how this burden will be distributed between state and local governments and whether the federal government will be called upon for bail-outs,” said Joshua Rauh of the Kellogg School.
The financial demands of unfunded pension promises come as state and local governments grapple with years of falling tax revenue related to the recession.
The combination has raised concern that defaults, which are historically rare in the $2,800 billion municipal bond market where local governments obtain money, could now rise.
“The bondholders would be competing with the pension beneficiaries for scarce government resources,” Mr Rauh said.
$3.5 trillion in pension liabilities on on side, and $2.8 billion in municipal bonds on the other. Is there any wonder state and local goverments are firing hundreds of thousands of employees right now?
As home values continue to plummet, so do property tax revenues, and the decrease couldn't come at a worse time. No, this is the real federal bailout coming, and when this bill comes due, it's going to be a nightmare.
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Let's see. In France today, in a little discussed story, 3.5 million people went on strike today, protesting, primarily, austerity cuts to pensions.
That would roughly translate to 17 million Americans calling a general strike, or roughly 10% of the total American workforce.
The next few years are going to be too interesting.
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