US - Six major US cities have pension assets that can only pay for promised benefits for the next 10 years, new research shows.
The report by Kellogg School of Management and the University of Rochester, entitled: "The Crisis in Local Government Pensions in the United States", said Philadelphia, Boston, Chicago, Cincinnati, Jacksonville and St. Paul had enough assets to pay for benefits until 2020.
An additional 18 cities and counties, including New York City, Detroit, Cook County in Illinois and Orange County in California would be solvent through to 2020 but not past 2025.
The research calculated aggregate unfunded liabilities for 77 defined pension plans sponsored by 50 major US cities and counties and forecast the number of years assets will last.
"Philadelphia has the most immediate cause for concern, as the city can pay existing promises with existing assets only through 2015 - less than five years from now," co-author Joshua Rauh said.
The report also warns state pension funds should add an additional $574bn to the previous unfunded liability estimate of $3trn.
Rauh said it was clear that state and local governments in the US are not far from the point where pension promises will impact their ability to operate. Once the funds themselves are liquidated, the extent to which promised pension payments are competing with other local resources will skyrocket, eroding a large portion of many municipal budgets, he added.
"In many cities, these unfunded promises will be a long-standing and substantial burden for municipal revenues," Rauh said. "For example, even if all other spending was shut down, the city of Chicago would need to allocate about eight years of dedicated tax revenues to cover pension promises it has already made."
"The fact that there is such a large burden of public employee pensions concentrated in urban metropolitan areas threatens the long-run economic viability of these cities, as residents can potentially move elsewhere to escape the situation.
"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. If these issues are left unresolved, fiscal crises on the state and local levels may translate into significant losses for municipal bondholders."
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