Of the variety of issues plaguing America’s economy today, unfunded public pensions are perhaps one of the greatest. CNBC News reports that a study expected to be released today shows major American cities may be faced with a $574 billion funding gap as a resulted of unfunded public pensions.
Research at the Kellogg School of Management at Northwestern University and the University of Rochester shows that the funding gap is in addition to billions of dollars in unfunded liabilities already estimated for state-run pensions.
Researchers at Kellogg studied 77 pension plans of 50 major cities and counties, covering nearly 2 million workers. CNBC explains that those examined are “estimated to be the two-thirds of workers covered by local pensions. Researchers then extrapolated the results-an unfunded liability of about $5,300 per worker-to come up with the total estimate of $574 billion.”
Of course, given the staggering figures determined by the Kellogg School, one big question remains: “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 bailouts,” questions Joshua Rauh of the Kellogg School.
He adds, “The bondholders would be competing with the pension beneficiaries for scarce government resources.”
For example, cities like Cincinnati, Ohio, and Jacksonville, Florida, will not be able to continue to pay the promised pension assets through 2020. Others, however, are even worse off. Philadelphia is only prepared to pay for current pension assets up through 2015, while Boston and Chicago can maintain the pensions a bit longer, until 2019.
To get a better grasp on the staggering figures that make up the unfunded pension funds, New York City, San Francisco, and Boston owe more than $30,000 per household in pension funds.