Pension Funding Becomes More Difficult for State, Local Governments

State and local governments are having increasing levels of difficulty in meeting their pension payment obligations, a problem exacerbated by the retirement of former government employees that are part of the baby boomer generation according to a new report by National Public Radio (NPR).

In the city of Houston, Texas, for instance, the initial $2.4 billion pension liability was projected over the next 30 years, which caused it to swell to $9 billion, according to David Berger of Segal Consulting. This gives a highly negative pronouncement about Houston’s financial future, Segal says.

“That would increase far faster than your revenues, your tax revenues,” Berger says. “And so that kind of highlights the need for, not only a current solution, but a longer term. What can we do to control the longer term costs as well?”

The problem is just as chronic for the rest of the country at-large. In 2016, the Center for Retirement Research at Boston College found that cities, counties and states are short more than $860 billion collectively in meeting their pension obligations for their retired government workers.

While pension funds have been historically underfunded and typical targets for political budget cuts, it’s not until recently that federal rules have forced community governments to disclose the financial shortfalls.

“Illinois, Connecticut, New Jersey, those are the plans where you see the most serious shortfalls and where you have, you know, high debt service and high retiree health care costs as well,” said Alicia Munnell, director of the Center for Retirement Research at Boston College.

Houston is expected to have a vote on ways it can overhaul the city government’s retirement benefits in the near future, while other major localities like Detroit and Chicago are being faced with mounting pressure on addressing their own shortfalls in these areas.

For more information, listen to or read the full story at NPR.

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