Here is Steve Malanga of the Manhattan Institute via tomorrow’s Wall Street Journal:
The steep fiscal crisis that many states face includes staggering retirement costs for their workers, estimated at some $3 trillion in unfunded future promises. The size of those liabilities has already shaken up some municipal bond investors, and the inadequate, sometimes misleading way that states account for these steep costs has attracted the attention of the Securities and Exchange Commission.
But lurking beneath those obligations is another huge set of liabilities from municipal governments, that is, from cities and counties whose politicians have also made astonishing promises to workers that they will have trouble keeping. Unlike states, which can’t declare bankruptcy, a few municipalities have already sought the protection of the courts to try and solve long-term budget problems. More may be heading that way. Bondholders and taxpayers beware.
A recent study of the 77 largest municipal pension systems by finance professors Joshua Rauh of Northwestern University’s Kellogg School and Robert Novy-Marx of the University of Rochester estimates that total unfunded liabilities of America’s municipal pension systems is well north of half a trillion dollars. On a per capita basis, the professors estimated that each household in the 50 largest cities and counties they studied owes an average of $14,165 for future retiree liabilities.
This, of course, is in addition to the other debt these places owe, most especially their municipal debt. New York City taxpayers, for instance, owe about $65 billion of municipal debt on top of what Rauh and Novy-Marx estimate is $122 billion in unfunded pension obligations.
It will surprise few people to discover that these local pension liabilities are especially high in places where state obligations are already stratospheric. Clearly there is a culture in some places that supports handing out big pension promises for political gain, with little prospect that these obligations would be adequately funded by either state or local government.
Remember folks, this is all over and above all of the other federal debt that folks are on the hook for. Have a nice day, especially when you are paying your soon to be coming VAT.