From a USA Today article titled “Detroit not alone under crushing pension obligations“:
WASHINGTON — Detroit may be alone among the nation’s biggest cities in terms of filing for bankruptcy, but it is far from the only city being crushed by a roiling mountain of long-term debt.
At the heart of Detroit’s problem is a growing unfunded debt on benefits owed to current and future retirees — some $3.5 billion, according to its emergency manager, Kevyn Orr — which mirrors a circumstance being seen across the U.S.
From Baltimore to Los Angeles, and many points in between, municipalities are increasingly confronted with how to pay for these massive promises. The Pew Center for the States, in Washington, estimated states’ public pension plans across the U.S. were underfunded by a whopping $1.4 trillion in 2010
For years, watchdog groups and public-sector analysts have warned of the threat posed by unfunded liabilities. Much like the legacy pension costs that weighed on Detroit’s automakers before the Chrysler and General Motors restructurings of 2009, the worry is that revenues can’t keep up with growing debt and that rosy predictions for market returns downplay the actual financial risk.
As examples of the results: Chicago recently saw its credit rating downgraded because of a $19-billion unfunded pension liability that the ratings service Moody’s puts closer to $36 billion. And Los Angeles could be facing a liability of more than $30 billion, by some estimates…
Last Monday, the bond rating house Moody’s also downgraded Cincinnati’s general obligation bonds, citing “budgetary pressure” from pension contributions. Its downgrade was to Aa2 — still a lot higher than Detroit’s Caa3 for its general obligation bonds — but another part of the trend.
The Pew Center calls it “the widening gap” and says it’s not going away anytime soon, and there won’t be any quick fixes.
