Pensions Not to Blame for City Fiscal Problems

Last month, the Center for Retirement Research at Boston College released a study examining whether city financial crises like Detroit’s bankruptcy were likely to happen in other financially troubled cities in the U.S., and whether these cities’ pension obligations were to blame. The study, called Are City Fiscal Woes Widespread? Are Pensions the Cause?, answered both questions with a resounding “no.”  The study found that “fiscal mismanagement and economic issues are more important than pensions in explaining why cities are identified as being in financial trouble.” 

The study reviewed 181 cities and towns, 32 of which were cited in the press as finically troubled. For each of these 181 cities, the researchers conducted an empirical analysis of the impact of eight variables, covering financial management factors (carry deficit, cash as a percent of revenue, issued pension obligation bond), economic factors (unemployment rate, number of foreclosures per 100,000 residences, peak population decline), and pension factors (pension costs as a percent of revenues, pension protections).

The study concluded that “when identifying the source of the problems, fiscal mismanagement leads the list. Economic problems, in large part a response to the financial crisis and ensuing recession, come in second. Pensions do play a role, but that role is much smaller than other considerations…they are not the major factor.”

For more information about public sector pensions, please contact your Trust Fund counsel.

By Kristina M. Zinnen | January 6, 2014

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