A budding recovery
Pensions are a wild card
Haider, as well as Fred Siegel, a senior fellow at the Center for State and Local Leadership at the New York City-based Manhattan Institute, also point out that promised pension obligations could overshadow any improvement in local finances, if changes are not made.
“The pension problems just grow and grow,” Siegel says. “Pension costs will eventually just squeeze out ordinary spending. They are extraordinarily difficult to handle.”Haider calls the pension liabilities “a wild card” and says they are a “bottomless pit.”
According to a number of experts, the total unfunded liabilities for all state and local pension plans total $3 trillion for retirement costs and another $1 trillion for unfunded retirement health care benefits, though some dispute the actual figure depending on how the amount is calculated. Regardless, pension costs have figured in a number of high-profile municipal bankruptcies, like Central Falls, R.I., and in voter referendums, in cities such as San Jose and San Diego. Municipal workers have fought back in high-profile contests in Wisconsin and Ohio.
“Local governments are caught in a vice,” Siegel says. “It’s hard to see anything good happening, with this legacy cost structure. I wish I could say something more cheerful.”
However, Pagano says that it’s important to recognize that the financial situation varies greatly from state to state and even within a single state. He points to his own state, Illinois, where the pension funds for state employees and Chicago employees are badly underfunded, but the fund for all other government employees is fully funded. “It’s not one problem, uniformly national in scope,” he says.
Zahradnik, of the Pew project, says that while there are reasons to be hopeful about the municipal finances, the multiple cross-currents require a substantial dose of patience. “We need to be watchful and cautious,” he says. “Especially with so much uncertainty in the economic recovery. There’s a lot of risk out there. We have to wait six to 12 months to see how this all plays out.”
Robert Barkin is a Bethesda, Md.-based contributor.