Most big cities have big budget trouble; boy are pensions a problem

Pew's Philadelphia Research Initiative, which put together the report on prisons we mentioned earlier this week, has some more news, this time not as good:

The latest review of municipal budgets in 13 major cities by The Pew Charitable Trusts' Philadelphia Research Initiative finds that almost all of the cities are dealing with another year of budget shortfalls, albeit slightly smaller than last year, and four of them intend to raise major taxes or impose broad new fees for fiscal 2011.

Don't worry, Philly is still distinguished: It's one of the four planning to raise a major tax (the property tax), and the only city increasing a broad-based tax for the second year in a row. Still, everyone's hurting, and so much so that new revenue alone isn't going to solve the problem:

Most of the cities are trying to reduce the size of their workforces and win further concessions from municipal unions on benefits, or both, as they cope with the recession's ongoing impact on municipal finances and pensions.

Perhaps the biggest threat, though, lies beyond the normal raise taxes/cut services discussion.

Every city for which figures were available reported a marked deterioration in its pension assets. In most cases, that means cities have to shift money away from city services and into pension funds. The cities' proportions of pension assets relative to obligations fell to a median of 64 percent in 2009 from a median 79 percent in 2008. (Actuaries generally consider 80 percent a safe minimum.) Seattle had the biggest decline, down 22 points to 64 percent. Pittsburgh's pension was in the worst shape with a 34 percent funded ratio. Los Angeles' was in the best shape at 90 percent. Philadelphia's ratio fell from 55 percent to 45 percent.

It is a strange thing about this current downturn that it looks like it will be less temporary for municipalities than for other sectors of society. Even when things pick up, a good chunk of city revenues will need to go to pay out pensions, rather than to cutting taxes or improving services.

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