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Cities Slide Deeper into Pension Sinkhole

Public pension funds in major American cities have fallen to an average funding level of 74 percent—well below the 80 percent considered safe, according to a Pew Center study released this week. As the money slowly drains from these funds, cities will be left with a stark choice: Cut promised pension benefits to public-sector workers, or cut vital services that the rest of the population relies on.

We already know that states face serious problems with their public employee pensions, but cities apparently have it even worse, and the laggards are in particularly dire straits, as the WSJ reports:

The growing funding gulf, which the study estimated at more than $217 billion for the 61 cities in the study, raises worries about local finances at a time when states are also struggling to recover from the recession. Property-tax revenue dipped during the housing crisis, straining city finances amid a weak national economy. . . .

At the bottom of the cities in the study are Charleston, W. Va.; Omaha, Neb.; Portland, Ore.; and Providence, R.I. Those four cities are funding their pensions at a lower level than Illinois, the state with the worst pension funding, according to the study.

Even a strong economic rebound may not be enough to save cities from poor decisions made decades ago, in some cases:

While the recession may have exacerbated pension woes, it didn’t cause them in most instances . . . . The cities that are the worst off, according to the most recent data, didn’t make their full required contributions to their pension systems before the financial crisis.

If there’s a silver lining here, it’s that the problem has become so serious that even staunch Democrats in deep blue states have come to accept the necessity for serious change. Pension reform is high on the agenda in both Illinois and Rhode Island, though neither state is anywhere close to finding a permanent solution.

More cities need to follow those states’ lead, and they need to begin as soon as possible. Even with enthusiastic support from the Governor and other Democratic leaders, progress on pensions in Illinois has been slow and halting, as unions and other opponents of reform have successfully obstructed the process. Mayors in blue cities across the country are likely to face similar obstacles. Getting a head start now will help put off even sharper pain later.

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